Penicillin and related <latex>$\beta$</latex>-lactam antibiotics are known to exert their bactericidal effects by inhibiting the cross-linking step (transpeptidation) of bacterial cell wall biosynthesis. Evidence is presented in support of the hypothesis that this inhibition results from covalent modification of the active site of sensitive enzymes as a consequence of the structural similarity between penicillin and the acyl-D-alanyl-D-alanine terminus of nascent peptidoglycan strands. Several predictions of this proposal have been verified experimentally. Penicillin-sensitive enzymes are inactivated, with the formation of a covalent, stoichiometric penicilloyl-enzyme complex in vitro. Acylenzyme intermediates have been trapped with several of these enzymes by using cell wall-related substrates. Sequence analysis of the peptides derived from active site-labelled enzymes has established that both penicilloyl and an acyl moiety derived from substrate are covalently bound to the same site, as an ester of serine 36, as predicted by the substrate analogue hypothesis. Sequences near the active site serine are homologous to sequences found in four <latex>$\beta$</latex>-lactamases, supporting the proposal that penicillin-sensitive D-alanine carboxypeptidases and penicillin-inactivating <latex>$\beta$</latex>-lactamases are evolutionarily related. Structural features important for the specific and potent inhibitory properties of <latex>$\beta$</latex>-lactam antibiotics are discussed in terms of the original substrate analogue hypothesis.