We have investigated the mechanism of action and physiology of production of the indole derivative antibiotics produced by the nematode-associated, entomopathogenic bacterium Xenorhabdus nematophilus.Maximum antibiotic concentration was reached during the late stationary phase of growth, and the antibiotic yield was appreciably enhanced by supplementation with tryptophan. Antibiotic biosynthesis apparently involved the removal of the side-chain carboxyl (C-1) carbon of tryptophan. The C-3 methylene carbon of tryptophan, on the other hand, was retained. The purified indole antibiotic was effective against both Gram-positive and Gram-negative bacteria at low to moderate concentrations causing a severe inhibition of RNA synthesis, accompanied by a less severe effect on protein synthesis. An isogenic pair of Escherichia coli strains differing at the relA locus was used to demonstrate that the swift reduction in total RNA synthesis is related to an antibiotic-induced accumulation of the regulatory nucleotide, ppGpp, in susceptible bacteria. The E. coli relA mutant, which does not exhibit any discernible increase in ppGpp upon antibiotic treatment, showed no decrease in growth or RNA synthesis. Using this antibiotic, it was also observed that ppGpp may be employed as a metabolic regulator in bacteria such as Pseudomonas putida, which have not previously been reported to employ ppGpp as a regulatory molecule. We propose that the indole derivative antibiotic exerts growth inhibitory control in susceptible bacteria by greatly enhancing synthesis of ppGpp, resulting in a rapid inhibition of RNA synthesis.