Microcin C7 (McC) is a peptide antibiotic modified by a linkage of the terminal isoAsn amide to AMP via a phosphoramidate bond. Post-translational modification on this ribosomally produced heptapeptide precursor is carried out by MccB, which consumes two equivalents of ATP to generate the N-P linkage. We demonstrate that MccB only efficiently processes the precursor heptapeptide that retains the N-formylated initiator Met (fMet). Binding studies and kinetic measurements evidence the role of the N-formyl moiety. Structural data show that the N-formyl peptide binding results in an ordering of residues in the MccB “crossover loop”, which dictates specificity in homologous ubiquitin activating enzymes. The N-formyl peptide exhibits substrate inhibition, and cannot be displaced from MccB by the desformyl counterpart. Such substrate inhibition may be a strategy to avert unwanted McC buildup and avert toxicity in the cytoplasm of producing organisms.