beta-Ketoacyl-acyl carrier protein (ACP) synthase III catalyzes the condensation of acetyl-CoA with malonyl-ACP in dissociated (Type II) fatty acid synthase systems. A synthase III mutant was used to localize the structural gene to the 24.5-min region of the Escherichia coli chromosome, and the defective synthase III allele was designated fabH1. The fabH gene was identified on a 1.3-kilobase NruI-HindIII chromosomal DNA fragment (plasmid pWO114) that complemented the enzymatic defect in fabH1 strains. The NruI-HindIII fragment was sequenced and contained a single open reading frame predicted to encode a 33,517-dalton protein with an isoelectric point of 4.85. The fabH sequence contained an Ala-Cys-Ala tripeptide characteristic of condensing enzyme active sites. A T7 expression system showed that the NruI-HindIII fragment directed the synthesis of a single 34,800-dalton protein. This protein was purified and the order of the amino-terminal 30 residues of the protein corresponded exactly to the amino acid structure predicted from the DNA sequence. The purified protein possessed both acetoacetyl-ACP synthase and acetyl-CoA:ACP transacylase activities, and cells harboring plasmid pWO114 overproduced the two activities, supporting the conclusion that a single protein carries out both reactions. Overproduction of synthase III resulted in a significant increase in shorter-chain fatty acids in the membrane phospholipids. These catalytic properties are consistent with the proposed role of synthase III in the initiation of fatty acid synthesis.