Penicillin-binding proteins (PBPs), the target enzymes of beta-lactam antibiotics such as penicillins and cephalosporins, catalyze the final peptidoglycan cross-linking step of bacterial cell-wall biosynthesis. beta-Lactams inhibit this reaction because they mimic the D-alanyl-D-alanine peptide precursors of cell-wall structure. Prior crystallographic studies have described the site of beta-lactam binding and inhibition, but they have failed to show the binding of D-Ala-D-Ala substrates. We present here the first high-resolution crystallographic structures of a PBP, D-Ala-D-Ala-peptidase of Streptomyces sp. strain R61, non-covalently complexed with a highly specific fragment (glycyl-L-alpha-amino-epsilon-pimelyl-D-Ala-D-Ala) of the cell-wall precursor in both enzyme-substrate and enzyme-product forms. The 1.9A resolution structure of the enzyme-substrate Henri-Michaelis complex was achieved by using inactivated enzyme, which was formed by cross-linking two catalytically important residues Tyr159 and Lys65. The second structure at 1.25A resolution of the uncross-linked, active form of the DD-peptidase shows the non-covalent binding of the two products of the carboxypeptidase reaction. The well-defined substrate-binding site in the two crystallographic structures shows a subsite that is complementary to a portion of the natural cell-wall substrate that varies among bacterial species. In addition, the structures show the displacement of 11 water molecules from the active site, the location of residues responsible for substrate binding, and clearly demonstrate the necessity of Lys65 and or Tyr159 for the acylation step with the donor peptide. Comparison of the complexed structures described here with the structures of other known PBPs suggests the design of species-targeted antibiotics as a counter-strategy towards beta-lactamase-elicited bacterial resistance.