The O-acetylation of the essential cell wall polymer peptidoglycan occurs in most Gram-positive bacterial pathogens, including species of Staphylococcus, Streptococcus and Enterococcus. This modification to peptidoglycan protects these pathogens from the lytic action of the lysozymes of innate immunity systems and, as such, is recognized as a virulence factor. The key enzyme involved, peptidoglycan O-acetyltransferase A (OatA) represents a particular challenge to biochemical study since it is a membrane associated protein whose substrate is the insoluble peptidoglycan cell wall polymer. OatA is predicted to be bimodular, being comprised of an N-terminal integral membrane domain linked to a C-terminal extracytoplasmic domain. We present herein the first biochemical and kinetic characterization of the C-terminal catalytic domain of OatA from two important human pathogens, Staphylococcus aureus and Streptococcus pneumoniae. Using both pseudosubstrates and novel biosynthetically-prepared peptidoglycan polymers, we characterized distinct substrate specificities for the two enzymes. In addition, the high resolution crystal structure of the C-terminal domain reveals an SGNH/GDSL-like hydrolase fold with a catalytic triad of amino acids but with a non-canonical oxyanion hole structure. Site-specific replacements confirmed the identity of the catalytic and oxyanion hole residues. A model is presented for the O-acetylation of peptidoglycan whereby the translocation of acetyl groups from a cytoplasmic source across the cytoplasmic membrane is catalyzed by the N-terminal domain of OatA for their transfer to peptidoglycan by its C-terminal domain. This study on the structure-function relationship of OatA provides a molecular and mechanistic understanding of this bacterial resistance mechanism opening the prospect for novel chemotherapeutic exploration to enhance innate immunity protection against Gram-positive pathogens.