sigma(25) is an extracytoplasmic function (ECF) sigma factor in the bacterium Streptomyces avermitilis that plays a differential regulatory role in avermectin and oligomycin biosynthesis. Gene deletion, complementation, and overexpression experiments showed that sigma(25) inhibited avermectin production but promoted oligomycin production. sigma(25) indirectly inhibited avermectin production by affecting the transcription of the pathway-specific activator gene aveR, whereas it directly activated oligomycin production by initiating transcription of the pathway-specific activator gene olmRI. The divergently transcribed genes smrAB are located upstream of sig25 and encode a putative two-component system (TCS). sigma(25) was found to initiate its own transcription, and its expression was directly activated by SmrA. The precise SmrA-binding sites in the region upstream of sig25 were determined by DNase I footprinting assays and identified two direct repeat sequences CTGTGA-n(5)-CTGTGA, suggesting that SmrA regulates sig25 transcription by binding to these direct repeats. The deletion of smrAB had the similar effect on avermectin and oligomycin A production to the deletion of sig25, indicating that sigma(25) and SmrAB function similarly in the regulation of antibiotic production. These findings helpfully clarify the regulation of antibiotic biosynthesis by an ECF sigma factor-TCS signal transduction system in S. avermitilis.