An extensive study of the mcyABC genes and regions flanking the mcy gene cluster was performed in naturally occurring Microcystis strains. Lack of methylation in strains producing only desmethyl(7)-microcystin was found to be associated with point mutations in substrate-binding sequence motifs of the N-methyltransferase (NMT) domain in McyA. Multiple recombination events giving rise to 'phylogenetic mosaics' were detected within the NMT-domain-encoding mcyA sequences and the adenylation (A) domain sequences of mcyB and mcyC. Recombination leading to exchanges between the mcyB and mcyC regions encoding A domains in modules McyB1 and McyC was also detected. A previously reported replacement of the A domain in McyB1 was found to involve the region between the conserved motifs A3 and A8/A9. In all microcystin-producing strains the mcy gene cluster was flanked by the genes uma1 and dnaN. Clear indications of recombination, an insertion element and footprints of IS elements were found in the dnaN-mcyJ intergenic region. Among the non-microcystin producers, uma1 and dnaN were linked in some, but not all strains. Most non-producing strains lacked all mcy genes, while one strain possessed a partially deleted mcy operon. Our results show that frequent horizontal gene transfer events in addition to point mutations and insertions/deletions contribute to variation in the mcy gene cluster.