The nucleotide sequence of a two-component signal transduction operon (cutRS) of Streptomyces lividans TK64 was elucidated. Transcription of the operon was detected during the transition and stationary phases of growth, initiating at a single site upstream of cutR. This promoter region also possessed promoter activity directed away from cutRS, which appears to be responsible for the previously observed suppression of the translational deficiency of a melC1 mutation. Mutations in cutR and cutS were generated by gene replacement. The resulting mutants exhibited accelerated and increased production of the polyketide antibiotic, actinorhodin, which could be reversed by introduction of cutR on a plasmid. cutRS was also shown to repress actinorhodin production in the closely related species, Streptomyces coelicolor A3(2). The cutRS operon is the second two-component system found in Streptomyces that negatively regulates secondary metabolism.