In the model cyanobacterium Anabaena sp. PCC 7120, cells called heterocysts that are specialized in the fixation of atmospheric nitrogen differentiate from vegetative cells of the filament in the absence of combined nitrogen. Heterocysts follow a specific distribution pattern along the filament, and a number of regulators have been identified that influence the heterocyst pattern. PatS and HetN, expressed in the differentiating cells, inhibit the differentiation of neighboring cells. At least PatS appears to be processed and transferred from cell to cell. HetC is similar to ABC exporters and is required for differentiation. We present an epistasis analysis of these regulatory genes and of genes, hetP and asr2819, successively downstream from hetC, and we have studied the localization of HetC and HetP by use of GFP fusions. Inactivation of patS, but not of hetN, allowed differentiation to proceed in a hetC background, whereas inactivation of hetC in patS or patS hetN backgrounds decreased the frequency of contiguous proheterocysts. A HetC-GFP protein is localized to the heterocysts and especially near their cell poles, and a putative HetC peptidase domain was required for heterocyst differentiation but not for HetC-GFP localization. hetP is also required for heterocyst differentiation. A HetP-GFP protein localized mostly near the heterocyst poles. ORF asr2819, which we denote patC, encodes an 84-residue peptide and is induced upon nitrogen step-down. Inactivation of patC led to a late spreading of the heterocyst pattern. Whereas HetC and HetP appear to have linked functions that allow heterocyst differentiation to progress, PatC may have a role in selecting sites of differentiation, suggesting that these closely positioned genes may be functionally related.