Several bloom-forming cyanobacterial genera produce potent inhibitors of eukaryotic protein phosphatases called microcystins. Microcystins are hepatotoxic cyclic heptapeptides and are presumed to be synthesized non-ribosomally by peptide synthetases. We identified putative peptide synthetase genes in the microcystin-producing strain Microcystis aeruginosa PCC 7806. Non-hepatotoxic strains of M. aeruginosa lack these genes. Strain PCC 7806 was transformed to chloramphenicol resistance. The antibiotic resistance cassette insertionally inactivated a peptide synthetase gene of strain PCC 7806 as revealed by Southern hybridization and DNA amplification. This is the first report of genetic transformation and mutation, by homologous recombination, of a bloom-forming cyanobacterium. Chemical and enzymatic analyses, including high-performance liquid chromatography (HPLC), mass spectrometry, amino acid activation, and protein phosphatase inhibition, revealed the inability of derived mutant cells to produce any variant of microcystin while maintaining their ability to synthesize other small peptides. The disrupted gene therefore encodes a peptide synthetase (microcystin synthetase) that is specifically involved in the biosynthesis of microcystins. Our results confirm that microcystins are synthesized non-ribosomally and that a basic difference between toxic and non-toxic strains of M. aeruginosa is the presence of one or more genes coding for microcystin synthetases.