Dictyostelium discoideum secretes a cyclic nucleotide phosphodiesterase to control cAMP levels during development. Three promoters control expression of the gene--one during vegetative growth, one during aggregation, and one which constrains phosphodiesterase synthesis to prestalk cells. In this report we show that the expression of phosphodiesterase (PDE) in prestalk cells is necessary for morphogenesis. A gene that codes for a specific glycoprotein inhibitor of the phosphodiesterase (Kd = 0.1 nM) was fused to the prestalk-specific promoter of the PDE gene. Transformants carrying multiple copies of this construct secreted inhibitor in 100-fold excess after the aggregation process had occurred. The first effect seen was an elongated tip, followed by a block in slug formation and an inability to culminate. Stalk and spores cells are produced but morphogenesis is uncoupled from cellular differentiation. Overproduction of inhibitor during earlier stages delayed aggregation, but did not affect fruiting body formation. A phosphodiesterase mutant was transformed with a plasmid that expresses PDE only during aggregation and not in prestalk cells. The defect in aggregation was rescued, but the defect in later development was not. The combined results indicate that PDE expression in prestalk cells is critical to morphogenesis. To ask whether the inhibitor gene under its normal regulation had a role in aggregation or later morphogenesis, it was destroyed by homologous recombination. The loss of the gene did not prevent development under the conditions used.