Compounds possessing a C-P or C-P-C bond are very rare among the natural products and their formation mechanisms remain as yet to be investigated in detail. Bialaphos (formerly called SF-1293) is a tripeptide, phosphinothricylalanylalanine produced by Streptomyces hygroscopicus SF-1293 and S. viridochromogenes and its use as a herbicide is now being actively investigated. The metabolite is characterized by the presence of a C-P-C bond in the phosphinothricin moiety. During biosynthetic studies on this compound in order to shed light on the formation mechanism of carbon-phosphorous bonds, we found the accumulation in the fermentation broth of two new metabolites named MP-101 and MP-102 containing a H-P-C bond which, to the best of our knowledge, has never been found in nature. We isolated these two compounds, determined their structures: MP-101 is L-2-amino-4-(hydroxyphosphinyl)butyric acid, and MP-102 is a tripeptide comprising MP-101 and two moles of L-alanine. Both compounds were quantitatively converted to bialaphos by a mutant (NTG-213) of the producing organism blocked at an early biosynthetic step, clearly showing that the formation of a H-P bond is a prerequisite for the methylation of phosphorus in C-P-C bond formation—this is the first report to show the involvement of H-P metabolites in the formation of a C-P bond. We hypothesize that bialaphos biosynthesis involves the reduction of a phosphate ester (most probably phosphoenolpyruvate) to a phosphite ester which would then rearrange to form a phosphinic acid intermediate for MP-101 and MP-102.