Biofilms are dense microbial communities. Although widely distributed and medically important, how biofilm cells interact with one another is poorly understood. Recently, we described a novel process whereby myxobacterial biofilm cells exchange their outer membrane (OM) lipoproteins. For the first time we report here the identification of two host proteins, TraAB, required for transfer. These proteins are predicted to localize in the cell envelope; and TraA encodes a distant PA14 lectin-like domain, a cysteine-rich tandem repeat region, and a putative C-terminal protein sorting tag named MYXO-CTERM, while TraB encodes an OmpA-like domain. Importantly, TraAB are required in donors and recipients, suggesting bidirectional transfer. By use of a lipophilic fluorescent dye, we also discovered that OM lipids are exchanged. Similar to lipoproteins, dye transfer requires TraAB function, gliding motility and a structured biofilm. Importantly, OM exchange was found to regulate swarming and development behaviors, suggesting a new role in cell–cell communication. A working model proposes TraA is a cell surface receptor that mediates cell–cell adhesion for OM fusion, in which lipoproteins/lipids are transferred by lateral diffusion. We further hypothesize that cell contact–dependent exchange helps myxobacteria to coordinate their social behaviors., Author Summary All cells interact with their environment, including other cells, to elicit cellular responses. Cell–cell interactions between eukaryotic cells are widely appreciated as large multicellular organisms coordinate cell behaviors for tissue and organ functions. In bacteria cell–cell interactions are not widely appreciated, as these organisms are relatively simple and are often depicted as single-cell entities. However, over the past decade, the concept of bacteria living in microbial communities or biofilms has received broad acceptance as a major lifestyle. As biofilm cells are packed in tight physical contact, there is an opportunity for cell–cell signaling to provide spatial and physiological clues of neighboring cells to elicit cellular responses. Although much has been learned about diffusible signals through quorum sensing, little is known about cell contact–dependent signaling in bacteria. In this report we describe a new mechanism where bacterial cells within structured biofilms form contacts that allow cellular material to be exchanged. This exchange elicits phenotypic changes, including in cell movements and development. We hypothesize that OM exchange involves kin recognition that bestows social benefits to myxobacterial populations.