Plasmid-encoded fusidic acid resistance in Escherichia coli is mediated by a common variant of chloramphenicol acetyltransferase (EC 2.3.1.28), an enzyme which is an effector of chloramphenicol resistance. Resistance to chloramphenicol is a consequence of acetylation of the antibiotic catalysed by the enzyme and the failure of the 3-acetoxy product to bind to bacterial ribosomes. Cell-free coupled transcription and translation studies are in agreement with genetic studies which indicated that the entire structural gene for the type I chloramphenicol acetyltransferase is necessary for the fusidic acid resistance phenotype. The mechanism of resistance does not involve covalent modification of the antibiotic. The other naturally occurring enterobacterial chloramphenicol acetyltransferase variants (types II and III) do not cause fusidic acid resistance. Steady-state kinetic studies with the type I enzyme have shown that the binding of fusidic acid is competitive with respect to chloramphenicol. The inhibition of polypeptide chain elongation in vitro which is observed in the presence of fusidic acid is relieved by addition of purified chloramphenicol acetyltransferase, and equilibrium dialysis experiments with [3H]fusidate and the type I enzyme have defined the stoichiometry and apparent affinity of fusidate for the type I enzyme. Further binding studies with fusidate analogues, including bile salts, have shown some of the structural constraints on the steroidal skeleton of the ligand which are necessary for binding to the enzyme. Determinations of antibiotic resistance levels and estimates of intracellular chloramphenicol acetyltransferase concentrations in vivo support the data from experiments in vitro to give a coherent mechanism for fusidic acid resistance based on reversible binding of the antibiotic to the enzyme.