Erwinia chrysanthemi mutants (designated as pecS) displaying derepressed pectate lyase and cellulase synthesis were isolated. In addition, the pecS mutation is responsible for production of an extracellular insoluble blue pigment whose synthesis is cryptic in the wild-type 3937 strain. Transduction analysis indicates that the phenotype is due to a single mutation located near the xyl marker on the strain 3937 chromosome. This mutation was complemented by an R-prime plasmid carrying the xyl and argG genes of E. chrysanthemi, suggesting that the pecS product acts in trans to modulate pectinase, cellulase and blue pigment production. Insertion mutagenesis of the cloned region and recombination of the corresponding mutations in the bacterial chromosome by marker exchange revealed the existence of two divergently transcribed genes, pecS and pecM, that are both involved in the pectate lyase and cellulase regulation. The nucleotide sequences of pecS and pecM were determined. The pecS gene encodes a 166 amino acid polypeptide that shows similarity to the MprA regulatory protein of Escherichia coli whereas the pecM gene encodes a 297 amino acid polypeptide that was shown to be an integral membrane protein. The possible functions of the PecS and PecM proteins derived from the mutant phenotype and sequence analysis are discussed in terms of signal transduction and transcription regulation.