Microcystins are cyclic hepatotoxic peptides consisting of 7 amino acids including Adda and other unusual amino acids. They are synthesized non-ribosomally by peptide synthetases. We identified DNA sequences with homology to conserved regions of peptide synthetase and polyketide synthase genes in the microcystin-producing strain PCC 7806 of Microcystis aeruginosa. The determined sequence of ca. 50kb comprises two gene clusters (operons), one harbouring peptide synthetase genes (mcyA,B,C), the other peptide synthetase genes and polyketide synthase genes (mcy D,E,F,G). The activities of polyketide synthases are expected to be required for the biosynthesis of Adda. The transcriptional activity of the genes has been studied under different environmental conditions. We inactivated two of the peptide synthetase genes and a polyketide synthase gene in strain PCC 7806 by genetic transformation and insertional mutation. The mutant cells obtained were unable to produce any variant of microcystin whilst maintaining their ability to synthesise other small peptides. Thus, the disrupted genes are specifically involved in the biosynthesis of microcystins. The mutant cells lack several proteins of high molecular weight including peptide synthetases which are hypothesized to form the microcystin synthetase complex. Genes encoding microcystin synthetases were found in all hepatotoxic strains and are absent in most non-toxic strains of M. aeruginosa. Possible roles for microcystin, as feeding deterrent against zooplankton or as having a function in intracellular metabolism, have been suggested as a result of mutant versus wild type analysis.