Cellulolytic strains of Bacillus stearothermophilus were isolated from nature and screened for the presence of activities associated with the degradation of plant cell walls. One isolate (strain XL-65-6) which exhibited strong activities with 4-methylumbelliferyl-beta-D-glucopyranoside (MUG) and 4-methylumbelliferyl-beta-D-cellobiopyranoside (MUC) was used to construct a gene library in Escherichia coli. Clones degrading these model substrates were found to encode the cellobiose-specific genes of the phosphoenolpyruvate-dependent phosphotransferase system (PTS). Both MUG and MUC activities were present together, and both activities were lost concurrently during subcloning experiments. A functional E. coli ptsI gene was required for MUC and MUG activities (presumably a ptsH gene also). The DNA fragment from B. stearothermophilus contained four open reading frames which appear to form a cel operon. Intergenic stop codons for celA, celB, and celC overlapped the ribosomal binding sites of the respective downstream genes. Frameshift mutations or deletions in celA, celB, and celD were individually shown to result in a loss of MUC and MUG activities. On the basis of amino acid sequence homology and hydropathy plots of translated sequences, celA and celB were identified as encoding PTS enzyme II and celD was identified as encoding PTS enzyme III. These translated sequences were remarkably similar to their respective E. coli homologs for cellobiose transport. No reported sequences exhibited a high level of homology with the celC gene product. The predicted carboxy-terminal region for celC was similar to the corresponding region of E. coli celF, a phospho-beta-glucosidase. An incomplete regulatory gene (celR) and proposed promoter sequence were located 5' to the proposed cel operon. A stem-loop resembling a rho-independent terminator was present immediately downstream from celD. These results indicate that B. stearothermophilus XL-65-6 contains a cellobiose-specific PTS for cellobiose uptake. Similar systems may be present in other gram-positive bacteria.