The ability of Toxoplasma gondii to cycle between the tachyzoite and bradyzoite life stages in intermediate hosts is key to parasite survival and the pathogenesis of toxoplasmosis. Studies from a number of laboratories indicate that differentiation in T. gondii is a stress-induced phenomenon. The signalling pathways or molecular mechanisms that control formation of the latent bradyzoite stage are unknown and specific effectors of differentiation have not been identified. We engineered a reporter parasite to facilitate simultaneous comparison of differentiation and replication after various treatments. Chloramphenicol acetyltransferase (CAT), expressed constitutively from the alpha-tubulin promoter (TUB1), was used to quantitate parasite number. beta-galactosidase (beta-GAL), expressed from a bradyzoite specific promoter (BAG1), was used as a measure of bradyzoite gene expression. Sodium nitroprusside, a well-known inducer of bradyzoite differentiation, reduced reporter parasite replication and caused bradyzoite differentiation. Stress-induced differentiation in many other pathogens is regulated by cyclic nucleotide kinases. Specific inhibitors of the cAMP dependent protein kinase and apicomplexan cGMP dependent protein kinase inhibited replication and induced differentiation. The beta-GAL/CAT reporter parasite provides a method to quantify and compare agents that cause differentiation in T. gondii.