The production of most toxins and other exoproteins in Staphylococcus aureus is controlled globally by a complex polycistronic regulatory locus, agr. Secretory proteins are up‐regulated by agr whereas surface proteins are down‐regulated. agr contains two divergent promoters, one of which directs the synthesis of a 514 nucleotide (nt) transcript, RNAIII. In this report, we show that the cloned RNAIII determinant restores both positive and negative regulatory functions of agr to an agr‐null strain and that the RNA itself, rather than any protein, is the effector molecule. RNAIII acts primarily on the initiation of transcription and, secondarily in some cases, at the level of translation. In these cases, translation and transcription are regulated independently. RNAIII probably regulates translation directly by interacting with target gene transcripts and transcription indirectly by means of intermediary protein factors.