The possible role of a cephalosporin C acetyl esterase in the formation of the beta-lactam antibiotic A16886A, 7-(5-amino-5-carboxyvaleramido)-3-carbamoyloxy-methyl-3-cephem-4-carboxylic acid, by Streptomyces clavuligerus was studied. Addition of dl-valine-(14)C-1 to a fermentation of Cephalosporium acremonium gave cephalosporin C-(14)C-9 (I). The formation of deacetylcephalosporin C-(14)C-9 from I occurred at a greater rate in broths of S. clavuligerus than in the broths of C. acremonium, or in the autoclaved broths of S. clavuligerus. Diisopropylfluorophosphate partially inhibited the deacetylation of I in S. clavuligerus broth. An intracellular cephalosporin C esterase in S. clavuligerus could not be demonstrated. Although A16886A has been chemically synthesized from deacetylcephalosporin C, this reaction could not be demonstrated with S. clavuligerus.