Xenorhabdus and Photorhabdus spp. are gram negative gamma proteobacteria that form entomopathogenic symbioses with soil nematodes. They undergo a complex life cycle that involves a symbiotic stage, in which the bacteria are carried in the gut of the nematodes, and a pathogenic stage, in which susceptible insect prey are killed by the combined action of the nematode and the bacteria. Both bacteria produce antibiotics, intracellular protein crystals, and numerous other products. These traits change in phase variants, which arise when the bacteria are maintained under stationary phase conditions in the laboratory. Molecular biological studies suggest that Xenorhabdus and Photorhabdus spp. may serve as valuable model systems for studying signal transduction and transcriptional and posttranscriptional regulation of gene expression. Such studies also indicate that these bacterial groups, which had been previously considered to be very similar, may actually be quite different at the molecular level.