The parameters involved in the action of β-galactosidase (EC 3.2.1.23) (Escherichia coli) on allolactose, the natural inducer of lac operon in E. coli, were studied. At low allolactose concentrations only galactose and glucose were formed, while at high allolactose concentrations transgalactolytic oligosaccharides were also produced. Detectable amounts of lactose were not formed. The V and Km values (49.6 U/mg and 0.00120 M, respectively) indicated that allolactose is as good if not a better substrate of β-galactosidase as lactose. The pH optimum with allolactose (7.8–7.9) as well as its activation by K+ (as compared to activation by Na+) were similar to the case with lactose as substrate. The α-anomer of allolactose was hydrolyzed about two times as rapidly as was the β-anomer.