A mechanism for bacteria to monitor the status of their vital cell wall peptidoglycan is suggested by the convergence of two phenomena: peptidoglycan recycling and beta-lactamase induction. ampG and ampD, genes essential for beta-lactamase regulation, are here shown to be required for recycling as well. Cells lacking either AmpG or AmpD lose up to 40% of their peptidoglycan per generation, whereas Escherichia coli normally suffers minimal losses and instead recycles 40 or 50% of the tripeptide, L-alanyl-D-glutamyl-meso-diaminopimelic acid, from its peptidoglycan each generation. The ampG mutant releases peptidoglycan-derived material into the medium. In contrast, the ampD mutant accumulates a novel cell wall muropeptide, 1,6-anhydro N-acetylmuramyl-L-alanyl-D-glutamyl-meso-diaminopimelic acid (anhMurNAc-tripeptide), in its cytoplasm. This work suggests that AmpG is the permease for a large muropeptide and AmpD is a novel cytosolic N-acetylmuramyl-L-alanine amidase that cleaves anhMurNAc-tripeptide to release tripeptide, which is then recycled. These results also suggest that the phenomenon of beta-lactamase induction is regulated by the level of muropeptide(s) in the cytoplasm, since an ampD mutation that results in beta-lactamase expression even in the absence of a beta-lactamase inducer coincides with accumulation of anhMurNAc-tripeptide. The transcriptional regulator AmpR is presumably converted into an activator for beta-lactamase production by sensing the higher level of muropeptide(s). This may be an example of a general mechanism for signaling the progress of external events such as cell wall maturation, cell division or cell wall damage.