The phosphodiesterase A1 protein of Acetobacter xylinum, AxPDEA1, is a key regulator of bacterial cellulose synthesis. This phosphodiesterase linearizes cyclic bis(3'-->5')diguanylic acid, an allosteric activator of the bacterial cellulose synthase, to the ineffectual pGpG. Here we show that AxPDEA1 contains heme and is regulated by reversible binding of O(2) to the heme. Apo-AxPDEA1 has less than 2% of the phosphodiesterase activity of holo-AxPDEA1, and reconstitution with hemin restores full activity. O(2) regulation is due to deoxyheme being a better activator than oxyheme. AxPDEA1 is homologous to the Escherichia coli direct oxygen sensor protein, EcDos, over its entire length and is homologous to the FixL histidine kinases over only a heme-binding PAS domain. The properties of the heme-binding domain of AxPDEA1 are significantly different from those of other O(2)-responsive heme-based sensors. The rate of AxPDEA1 autoxidation (half-life > 12 h) is the slowest observed so far for this type of heme protein fold. The O(2) affinity of AxPDEA1 (K(d) approximately 10 microM) is comparable to that of EcDos, but the rate constants for O(2) association (k(on) = 6.6 microM(-)(1) s(-)(1)) and dissociation (k(off) = 77 s(-)(1)) are 2000 times higher. Our results illustrate the versatility of signal transduction mechanisms for the heme-PAS class of O(2) sensors and provide the first example of O(2) regulation of a second messenger.