Streptomyces clavuligerus is capable of producing various secondary metabolites including clavulanic acid. The biosynthetic pathway of clavulanic acid is partially shared with other structurally related 5S clavams. The first reaction involved in clavam biosynthesis is catalyzed by carboxyethylarginine synthase (CeaS), which is encoded by two paralogous genes, ceaS1 and ceaS2. However, ceaS2 mutant was severely compromised in clavam biosynthesis when grown in liquid medium. This mutation was shown to affect ceaS1 transcription, as reverse transcriptase-polymerase chain reaction (RT-PCR) and Western blot protein analyses showed that transcription of ceaS1, and CeaS1 production, were abolished in ceaS2 mutants. Interestingly, clavam biosynthesis was restored when ceaS2 mutants were grown on solid medium. Production of 5S clavams in S. clavuligerus is controlled by a pathway specific transcriptional regulator, C7P, and an unusual two-component system that is composed of a sensor kinase, Snk, and two response regulators, Res1 and Res2. Null mutations in snk or res2 completely abolished production of 5S clavams. In contrast, res1 mutants overproduce 2-hydroxymethylclavam and alanylclavam. Phosphorylation sites of each protein involved in this two-component system were identified by changing the conserved histidine residues of Snk (H-365) and the asparatate residues of Res1 (D-65) and Res2 (D-52) to alanine residues. These mutations prevented auto-phosphorylation of Snk and transfer of phosphate molecules from phosphorylated Snk to response regulators as shown by in vitro phosphorylation assays. The phosphorylation dynamics between Res1 and Res2 were also analyzed. Phospho-transfer assays suggested that Res1 is capable of transferring its phosphate molecule to Res2, and dephosphorylation assays showed that Res1 may possess phosphatase activity. The transcriptional regulator C7P is encoded by the c7p gene. RT-PCR analyses showed that transcription of cvm1 and cvm5, which encode essential biosynthetic enzymes involved in 5S clavam production, ceased in c7p mutants. In addition, c7p transcription was severely reduced in a snk or res2 mutant. Electrophoretic mobility shift assays showed that Res2 binds to the putative promoter region of c7p, and C7P binds to the intergenic region between cvm1 and cas1. This suggests that the two-component system controls transcription of c7p, and C7P promotes transcription of clavam genes through direct binding.