Hemolysin (HlyA) from Escherichia coli containing the hlyCABD operon separated from the nonhemolytic pro-HlyA upon two-dimensional (2-D) polyacrylamide gel electrophoresis. The migration distance indicated a net loss of two positive charges in HlyA as a result of the HlyC-mediated activation (modification). HlyA activated in vitro in the presence of [U-14C]palmitoyl-acyl carrier protein comigrated with in vivo-activated hemolysin on 2-D gels and was specifically labelled, in agreement with the assumption that the activation is accomplished in vitro and in vivo by covalent fatty acid acylation. The in vivo-modified amino acid residues were identified by peptide mapping and 2-D polyacrylamide gel electrophoresis of mutant and truncated HlyA derivatives, synthesized in E. coli in the presence and absence of HlyC. These analyses indicated that the internal residues Lys-564 and Lys-690 of HlyA, which have recently been shown by others to be fatty acid acylated by HlyC in vitro, are also the only modification sites in vivo. HlyA activated in E. coli was quantitatively fatty acid acylated at both sites, and the double modification was required for wild-type hemolytic activity. Single modifications in mutant and truncated HlyA derivatives suggested that both lysine residues are independently fatty acid acylated by a mechanism requiring additional sequences or structures flanking the corresponding acylation site. The intact repeat domain of HlyA was not required for the activation. The pore-forming activities of pro-HlyA and singly modified HlyA mutants in planar lipid bilayer membranes suggested that the activation is not essential for transmembrane pore formation but rather required for efficient binding of the toxin to target membranes.