Wild-type Escherichia coli are not able to utilize beta-glucoside sugars because the genes for utilization of these sugars are cryptic. Spontaneous mutations in the cel operon allow its expression and enable the organism to ferment cellobiose, arbutin and salicin. In this report we describe the structure and nucleotide sequence of the cel operon. The cel operon consists of five genes: celA, whose function is unknown; celB and celC which encode phosphoenolpyruvate-dependent phosphotransferase system enzyme IIcel and enzyme IIIcel, respectively, for the transport and phosphorylation of beta-glucoside sugars; celD, which encodes a negative regulatory protein; and celF, which encodes a phospho-beta-glucosidase that acts on phosphorylated cellobiose, arbutin and salicin. The mutationally activated cel operon is induced in the presence of its substrates, and is repressed in their absence. A comparison of proteins encoded by the cel operon with functionally equivalent proteins of the bgl operon, another cryptic E. coli gene system responsible for the catabolism of beta-glucoside sugars, revealed no significant homology between these two systems despite common functional characteristics. The celD and celF encoded repressor and phospho-beta-glucosidase proteins are homologous to the melibiose regulatory protein and to the melA encoded alpha-galactosidase of E. coli, respectively. Furthermore, the celC encoded PEP-dependent phosphotransferase system enzyme IIIcel is strikingly homologous to an enzyme IIIlac of the Gram-positive organism Staphylococcus aureus. We conclude that the genes for these two enzyme IIIs diverged much more recently than did their hosts, indicating that E. coli and S. aureus have undergone relatively recent exchange of chromosomal genes.