Staphylococcus aureus sortase (SrtA) is a thiol transpeptidase. The enzyme catalyzes a cell wall sorting reaction in which a surface protein with a sorting signal containing a LPXTG motif is cleaved between the threonine and glycine residues. The resulting threonine carboxyl end of this protein is covalently attached to a pentaglycine cross-bridge of peptidoglycan. The transpeptidase activity of sortase has been demonstrated in in vitro reactions between a LPETG-containing peptide and triglycine. When a nucleophile is not available, sortase slowly hydrolyzes the LPETG peptide at the same site. In this study, we have analyzed the steady-state kinetics of these two types of reactions catalyzed by sortase. The kinetic results fully support a ping-pong mechanism in which a common acyl-enzyme intermediate is formed in transpeptidation and hydrolysis. However, each reaction has a distinct rate-limiting step: the formation of the acyl-enzyme in transpeptidation and the hydrolysis of the same acyl-enzyme in the hydrolysis reaction. We have also demonstrated in this study that the nucleophile binding site of S. aureus sortase SrtA is specific for diglycine. While S1' and S2' sites of the enzyme both prefer a glycine residue, the S1' site is exclusively selective for glycine. Lengthening of the polyglycine acceptor nucleophile beyond diglycine does not further enhance the binding and catalysis.