Photorhabdus and Xenorhabdus species have mutualistic associations with nematodes and an entomopathogenic stage1,2 in their life cycles. In both stages, numerous specialized metabolites are produced that have roles in symbiosis and virulence3,4. Although regulators have been implicated in the regulation of these specialized metabolites3,4, how small regulatory RNAs (sRNAs) are involved in this process is not clear. Here, we show that the Hfq-dependent sRNA, ArcZ, is required for specialized metabolite production in Photorhabdus and Xenorhabdus. We discovered that ArcZ directly base-pairs with the mRNA encoding HexA, which represses the expression of specialized metabolite gene clusters. In addition to specialized metabolite genes, we show that the ArcZ regulon affects approximately 15% of all transcripts in Photorhabdus and Xenorhabdus. Thus, the ArcZ sRNA is crucial for specialized metabolite production in Photorhabdus and Xenorhabdus species and could become a useful tool for metabolic engineering and identification of commercially relevant natural products.