The enzyme adenylate cyclase plays a key role in mediating the phenomenon of catabolite repression in Escherichia coli. The mechanism by which one sugar prevents the expression of the gene for another catabolite depends on the capacity of the cell to take up the sugar. Sugars that are most effective in the repression mechanism are those that are transported by the phosphoenolpyruvate-energized phosphotransferase system. The hypothesis presented here is that one or more of the proteins associated with this sugar transport system interact with adenylate cyclase and, when they are in their phosphorylated form, activate the enzyme, provided other factors that permit this activation are present. Another essential activator of adenylate cyclase is inorganic orthophosphate. When E. coli are starved for sugars, the pool of total phosphate is accounted for primarily as inorganic orthophosphate, ATP, phosphoenolpyruvate, and transport proteins in their phospho-forms, a condition that promotes activation of adenylate cyclase. When cells are exposed to sugars, the phosphate pool becomes drastically redistributed, such that the level of inorganic orthophosphate and transport phosphoproteins decreases markedly while the pool of sugar phosphate increases. This translation of the extracellular availability of carbon sources into an intracellular phosphate redistribution is the immediate event that is responsible for catabolite repression.