The dnrO gene is located adjacent to and divergently transcribed from the response regulator gene, dnrN, that activates the transcription of the dnrI gene, which in turn activates transcription of the daunorubicin biosynthesis genes in Streptomyces peucetius. Gene disruption and replacement of dnrO produced the dnrO::aphII mutant strain and resulted in the complete loss of daunorubicin biosynthesis. Suppression of the dnrO::aphII mutation by the introduction of dnrN or dnrI on a plasmid suggested that DnrO is required for the transcription of dnrN, whose product is known to be required for dnrI expression. These conclusions were supported by the effects of the dnrO mutation on expression of dnrO, dnrN and dnrI, as viewed by melC fusions to each of these regulatory genes. DnrO was overexpressed in Escherichia coli and the cell-free extract was used to conduct mobility shift DNA-binding assays. The results showed that DnrO binds specifically to the overlapping dnrN/dnrO(p1) promoter region. Thus, DnrO may regulate the expression of both the dnrN and dnrO genes.