sae is a two-component signal transduction system in Staphylococcus aureus that regulates the expression of many virulence factors at the transcriptional level and appears to act synergistically with agr in some cases. In this study, the interactions between sae and agr have been characterized in some detail. It was found that the sae locus is larger and more complex than originally envisioned, in that it is expressed from several promoters, giving rise to four or five transcripts, at least three of which are initiated upstream of saeRS and contain two additional reading frames, here designated saeP and saeQ, which are likely to have important roles in sae function. The upstream transcripts are induced during exponential phase concomitantly with the onset of RNAIII synthesis and their induction requires the agr effector, RNAIII, but is blocked by several environmental signals that override the effects of RNAIII. saeR is also required for the induction of these transcripts, so that the sae locus contains an autoinduction circuit. It is suggested that sae is downstream of agr in the exoprotein activation pathway (and also epistatic with agr), that it coordinates the effects of environmental signals with the agr quorum-sensing system, and therefore that it is a key intermediary in the overall regulatory strategy by which S. aureus senses and responds to its environment.