We previously cloned the sigH gene encoding a stress-response sigma factor sigma(H) in Streptomyces coelicolor A3(2), located in an operon with the gene encoding proposed anti-sigma factor UshX. To clarify the in vivo function of sigma(H), a stable null mutant of sigH was prepared by homologous recombination. This mutation appeared to have no obvious effect on vegetative growth, but dramatically affected morphological differentiation. Microscopy showed that the sigH mutant produced undifferentiated hyphae with rare spore chains, giving the colony a pale gray color compared to the dark gray wild-type spores. The sigH mutation partially affected growth under conditions of high osmolarity. Expression of the sigH operon was investigated in the S. coelicolor sigH mutant. Out of four promoters directing expression of the sigH operon, the sigH-P2 promoter--the only promoter preferentially induced by salt-stress conditions--was inactive in the sigH mutant. The results indicated that the sigH-P2 promoter is dependent (directly or indirectly) upon sigma(H) and that the operon is autocatalytically activated. We propose that in S. coelicolor sigma(H) has a dual role, regulating the osmotic response and morphological differentiation.