We cloned the gene encoding a membrane-interactive protein of Borrelia burgdorferi by means of its haemolytic activity in Escherichia coli. The haemolytic activity was erythrocyte-species specific, with progressively decreasing activity for erythrocytes from horse, sheep, and rabbit, respectively. Genetic analysis of the haemolytic determinant revealed two borrelia haemolysin genes, blyA and blyB, that are part of a predicted four-gene operon which is present in multiple copies on the 30 kb circular plasmid(s) of B. burgdorferi B31. blyA encodes a predicted α-helical 7.4 kDa protein with a hydrophobic central region and a positively charged C-terminus, which is structurally homologous to a large group of pore-forming toxins with cytolytic activity. blyB encodes a soluble protein which stabilized BlyA and enhanced haemolytic activity. While the majority of BlyA in E. coli was membrane-associated, only soluble protein was haemolytically active. The haemolytic activity was shown to be highly protease sensitive, heat labile, independent of divalent cations, and extremely dependent on protein concentration, consistent with a requirement for oligomerization as the mechanism of action. BlyA was highly purified from E. coli in a single step utilizing Triton X-114 phase partitioning. Genetic analysis of blyA and blyB mutants indicated that the stability, membrane association, and activity of BlyA was dependent on subtle changes in its sequence and on the BlyB protein. The bly genes were found to be expressed at a very low level in cultured B. burgdorferi.