Antibiotic resistance is a prevalent problem in public health worldwide. In general, the carbapenem β-lactam antibiotics are considered a final resort against lethal infections by multidrug-resistant bacteria. Colistin is a cationic polypeptide antibiotic and acts as the last line of defense for treatment of carbapenem-resistant bacteria. Very recently, a new plasmid-borne colistin resistance gene, mcr-2, was revealed soon after the discovery of the paradigm gene mcr-1, which has disseminated globally. However, the molecular mechanisms for MCR-2 colistin resistance are poorly understood. Here we show a unique transposon unit that facilitates the acquisition and transfer of mcr-2. Evolutionary analyses suggested that both MCR-2 and MCR-1 might be traced to their cousin phosphoethanolamine (PEA) lipid A transferase from a known polymyxin producer, Paenibacillus. Transcriptional analyses showed that the level of mcr-2 transcripts is relatively higher than that of mcr-1. Genetic deletions revealed that the transmembrane regions (TM1 and TM2) of both MCR-1 and MCR-2 are critical for their location and function in bacterial periplasm, and domain swapping indicated that the TM2 is more efficient than TM1. Matrix-assisted laser desorption ionization–time of flight mass spectrometry (MALDI-TOF MS) confirmed that all four MCR proteins (MCR-1, MCR-2, and two chimeric versions [TM1-MCR-2 and TM2-MCR-1]) can catalyze chemical modification of lipid A moiety anchored on lipopolysaccharide (LPS) with the addition of phosphoethanolamine to the phosphate group at the 4′ position of the sugar. Structure-guided site-directed mutagenesis defined an essential 6-residue-requiring zinc-binding/catalytic motif for MCR-2 colistin resistance. The results further our mechanistic understanding of transferable colistin resistance, providing clues to improve clinical therapeutics targeting severe infections by MCR-2-containing pathogens.