<jats:title>ABSTRACT</jats:title> <jats:p> <jats:named-content xmlns:xlink="http://www.w3.org/1999/xlink" content-type="genus-species" xlink:type="simple">Streptomyces clavuligerus</jats:named-content> produces a collection of five clavam metabolites, including the clinically important β-lactamase inhibitor clavulanic acid, as well as four structurally related metabolites called 5S clavams. The paralogue gene cluster of <jats:named-content xmlns:xlink="http://www.w3.org/1999/xlink" content-type="genus-species" xlink:type="simple">S. clavuligerus</jats:named-content> is one of three clusters of genes for the production of these clavam metabolites. A region downstream of the cluster was analyzed, and <jats:italic>snk</jats:italic> , <jats:italic>res1</jats:italic> , and <jats:italic>res2</jats:italic> , encoding elements of an atypical two-component regulatory system, were located. Mutation of any one of the three genes had no effect on clavulanic acid production, but <jats:italic>snk</jats:italic> and <jats:italic>res2</jats:italic> mutants produced no 5S clavams, whereas <jats:italic>res1</jats:italic> mutants overproduced 5S clavams. Reverse transcriptase PCR analyses showed that transcription of <jats:italic>cvm7p</jats:italic> (which encodes a transcriptional activator of 5S clavam biosynthesis) and 5S clavam biosynthetic genes was eliminated in <jats:italic>snk</jats:italic> and in <jats:italic>res2</jats:italic> mutants but that <jats:italic>snk</jats:italic> and <jats:italic>res2</jats:italic> transcription was unaffected in a <jats:italic>cvm7p</jats:italic> mutant. Both <jats:italic>snk</jats:italic> and <jats:italic>res2</jats:italic> mutants could be complemented by introduction of <jats:italic>cvm7p</jats:italic> under the control of an independently regulated promoter. <jats:italic>In vitro</jats:italic> assays showed that Snk can autophosphorylate and transfer its phosphate group to both Res1 and Res2, and Snk-H365, Res1-D52, and Res2-D52 were identified as the phosphorylation sites for the system. Dephosphorylation assays indicated that Res1 stimulates dephosphorylation of Res2∼P. These results suggest a regulatory cascade in which Snk and Res2 form a two-component system controlling <jats:italic>cvm7p</jats:italic> transcription, with Res1 serving as a checkpoint to modulate phosphorylation levels. Cvm7P then activates transcription of 5S clavam biosynthetic genes.