Plasmid pIP816 of Enterococcus faecium BM4147 confers inducible resistance to vancomycin and encodes the VanH dehydrogenase and the VanA ligase for synthesis of depsipeptide-containing peptidoglycan precursors which bind the antibiotic with reduced affinity. We have characterized a cluster of five genes of pIP816 sufficient for peptidoglycan synthesis in the presence of vancomycin. The distal part of the van cluster encodes VanH, VanA, and a third enzyme, VanX, all of which are necessary for resistance. Synthesis of these enzymes was regulated at the transcriptional level by the VanS-VanR two-component regulatory system encoded by the proximal part of the cluster. VanR was a transcriptional activator related to response regulators of the OmpR subclass. VanS stimulated VanR-dependent transcription and was related to membrane-associated histidine protein kinases which control the level of phosphorylation of response regulators. Analysis of transcriptional fusions with a reporter gene and RNA mapping indicated that the VanR-VanS two-component regulatory system activates a promoter used for cotranscription of the vanH, vanA, and vanX resistance genes.