The two-peptide lantibiotic haloduracin is composed of two post-translationally modified polycyclic peptides that synergistically act on Gram-positive bacteria. We show here that Hal alpha inhibits the transglycosylation reaction catalyzed by PBP1b by binding in a 2:1 stoichiometry to its substrate lipid II. Hal beta and the mutant Hal alpha-E22Q were not able to inhibit this step in peptidoglycan biosynthesis, but Hal alpha with its leader peptide still attached was a potent inhibitor. Combined With previous findings, the data support a model in which a 1:2:2 lipid II:Hal alpha:Hal beta complex inhibits cell wall biosynthesis, and mediates pore formation, resulting in loss of membrane potential and potassium efflux.