We characterized the sae operon, a global regulator for virulence gene expression in Staphylococcus aureus. A Tn917 sae mutant was obtained by screening a Tn917 library of the agr mutant ISP479Mu for clones with altered hemolytic activity. Sequence analysis of the sae operon revealed two additional open reading frames (ORFs) (ORF3 and ORF4) upstream of the two-component regulatory genes saeR and saeS. Four overlapping sae-specific transcripts (T1 to T4) were detected by Northern blot analysis, and the transcriptional initiation points were mapped by primer extension analysis. The T1, T2, and T3 mRNAs are probably terminated at the same stem-loop sequence downstream of saeS. The T1 message (3.1 kb) initiates upstream of ORF4, T2 (2.4 kb) initiates upstream of ORF3, and T3 (2.0 kb) initiates in front of saeR. T4 (0.7 kb) represents a monocistronic mRNA encompassing ORF4 only. sae-specific transcripts were detectable in all of the 40 different clinical S. aureus isolates investigated. Transcript levels were at maximum during the post-exponential growth phase. The sae mutant showed a significantly reduced rate of invasion of human endothelial cells, consistent with diminished transcription and expression of fnbA. The expression of type 5 capsular polysaccharide is activated in the sae mutant of strain Newman, as shown by immunofluorescence and promoter-reporter fusion experiments. In summary, the sae operon constitutes a four-component regulator system which acts on virulence gene expression in S. aureus.