Penicillin binding proteins (PBPs) catalyzing transpeptidation reactions that stabilize the peptidoglycan component of the bacterial cell wall are the targets of beta-lactams, the most clinically successful antibiotics to date. However, PBP-transpeptidation enzymology has evaded detailed analysis, because of the historical unavailability of kinetically competent assays with physiologically relevant substrates and the previously unappreciated contribution of protein cofactors to PBP activity. By re-engineering peptidoglycan synthesis, we have constructed a continuous spectrophotometric assay for transpeptidation of native or near native peptidoglycan precursors and fragments by Escherichia coli PBP1B, allowing us to (a) identify recognition elements of transpeptidase substrates, (b) reveal a novel mechanism of stereochemical editing within peptidoglycan transpeptidation, (c) assess the impact of peptidoglycan substrates on beta-lactam targeting of transpeptidation, and (d) demonstrate that both substrates have to be bound before transpeptidation occurs. The results allow characterization of high molecular weight PBPs as enzymes and not merely the targets of beta-lactam acylation.