Bacillus anthracis elaborates a poly-gamma-d-glutamic acid capsule that protects bacilli from phagocytic killing during infection. The enzyme CapD generates amide bonds with peptidoglycan cross-bridges to anchor capsular material within the cell wall envelope of B. anthracis. The capsular biosynthetic pathway is essential for virulence during anthrax infections and can be targeted for anti-infective inhibition with small molecules. Here, we present the crystal structures of the gamma-glutamyltranspeptidase CapD with and without alpha-l-Glu-l-Glu dipeptide, a non-hydrolyzable analog of poly-gamma-d-glutamic acid, in the active site. Purified CapD displays transpeptidation activity in vitro, and its structure reveals an active site broadly accessible for poly-gamma-glutamate binding and processing. Using structural and biochemical information, we derive a mechanistic model for CapD catalysis whereby Pro(427), Gly(428), and Gly(429) activate the catalytic residue of the enzyme, Thr(352), and stabilize an oxyanion hole via main chain amide hydrogen bonds.