Genetic exchange by natural transformation in Streptococcus pneumoniae occurs in a cell-density dependent process and is initiated by a small extracellular signalling molecule, the competence-stimulating peptide (CSP). comC, the gene for this peptide, has previously been identified and encodes a 44 amino acid pre-peptide that is apparently processed to an active molecule that consists of the C-terminal 17 amino acids. We have sequenced the region adjacent to comC and shown that it is the first gene of an operon, com, consisting of two downstream elements, comD and comE, which encode members of the two-component family of sensor regulators. Null mutants with defects in either comC or comD were transformation deficient and failed to respond to exogenous CSP. A comC mutant did not exhibit any detectable CSP activity, while a comD mutant that contained an intact comC produced minimal CSP activity. In mixed-culture experiments consisting of isogenic pairs of pneumococci (Csp+ and Csp-), we showed that induction of competence by quorum sensing was independent of CSP. Northern analysis showed that com was transcribed as a single polycistronic message, while analysis of strains with transcriptional fusions showed that com was constitutively expressed under conditions that both promoted or repressed the development of competence. Finally, we showed genetically and biochemically a CSP-dependent transcription of rec, a competence-induced locus, and that ComD and ComE are required for this CSP-dependent expression.