Cyanobacteria are emerging as promising hosts for production of advanced biofuels such as n-butanol and alkanes. However, cyanobacteria suffer from the same product inhibition problems as those that plague other microbial biofuel hosts. High concentrations of butanol severely reduce growth, and even small amounts can negatively affect metabolic processes. An understanding of how cyanobacteria are affected by their biofuel product can enable identification of engineering strategies for improving their tolerance. Here we used transcriptome sequencing (RNA-Seq) to assess the transcriptome response of Synechocystis sp. strain PCC 6803 to two concentrations of exogenous n-butanol. Approximately 80 transcripts were differentially expressed at 40 mg/liter butanol, and 280 transcripts were different at 1 g/liter butanol. Our results suggest a compromised cell membrane, impaired photosynthetic electron transport, and reduced biosynthesis. Accumulation of intracellular reactive oxygen species (ROS) scaled with butanol concentration. Using the physiology and transcriptomics data, we selected several genes for overexpression in an attempt to improve butanol tolerance. We found that overexpression of several proteins, notably, the small heat shock protein HspA, improved tolerance to butanol. Transcriptomics-guided engineering created more solvent-tolerant cyanobacteria strains that could be the foundation for a more productive biofuel host.