Horizontal gene transfer is common in cyanobacteria, and transfer of large gene clusters may lead to acquisition of new functions and conceivably niche adaption. In the present study, we demonstrate that horizontal gene transfer between closely related Planktothrix strains can explain the production of the same oligopeptide isoforms by strains of different colors. Comparison of the genomes of eight Planktothrix strains revealed that strains producing the same oligopeptide isoforms are closely related, regardless of color. We have investigated genes involved in the synthesis of the photosynthetic pigments phycocyanin and phycoerythrin, which are responsible for green and red appearance, respectively. Sequence comparisons suggest the transfer of a functional phycoerythrin gene cluster generating a red phenotype in a strain that is otherwise more closely related to green strains. Our data show that the insertion of a DNA fragment containing the 19.7-kb phycoerythrin gene cluster has been facilitated by homologous recombination, also replacing a region of the phycocyanin operon. These findings demonstrate that large DNA fragments spanning entire functional gene clusters can be effectively transferred between closely related cyanobacterial strains and result in a changed phenotype. Further, the results shed new light on the discussion of the role of horizontal gene transfer in the sporadic distribution of large gene clusters in cyanobacteria, as well as the appearance of red and green strains.