One-third of the lipid A found in the Escherichia coli outer membrane contains an unsubstituted diphosphate unit at position 1 (lipid A 1-diphosphate). We now report an inner membrane enzyme, LpxT (YeiU), which specifically transfers a phosphate group to lipid A, forming the 1-diphosphate species. (32)P-labelled lipid A obtained from lpxT mutants do not produce lipid A 1-diphosphate. In vitro assays with Kdo(2)-[4'-(32)P]lipid A as the acceptor shows that LpxT uses undecaprenyl pyrophosphate as the substrate donor. Inhibition of lipid A 1-diphosphate formation in wild-type bacteria was demonstrated by sequestering undecaprenyl pyrophosphate with the cyclic polypeptide antibiotic bacitracin, providing evidence that undecaprenyl pyrophosphate serves as the donor substrate within whole bacteria. LpxT-catalysed phosphorylation is dependent upon transport of lipid A across the inner membrane by MsbA, a lipid A flippase, indicating a periplasmic active site. In conclusion, we demonstrate a novel pathway in the periplasmic modification of lipid A that is directly linked to the synthesis of undecaprenyl phosphate, an essential carrier lipid required for the synthesis of various bacterial polymers, such as peptidoglycan.