In Saccharomyces cerevisiae the anaerobic (oxygen-repressed) ANB1 gene and a group of aerobic (oxygen-induced) genes are coordinately regulated by the ROX1 gene. We report here that heme, known as an inducer of aerobic genes, also causes inhibition of ANB1 expression. Thus, in combination with the ROX1 gene product heme has an opposite effect on the expression of anaerobic and aerobic genes. Accumulation of ANB1 mRNA was sharply decreased in anaerobic cells grown in the presence of heme. This effect must operate at the level of transcription since heme also inhibited accumulation of CYC1 mRNA from an ANB1-CYC1 fusion. Heme precursors did not appear to function either as inhibitors or as activators. Oxygen itself also had no effect on transcription of ANB1. Repression by heme cannot be attributed to the respiratory competence conferred by heme since both ANB1 and the aerobic genes tr-1 and CYC1 were regulated normally in [rho 0] mutants. The results are consistent with a classical allosteric coeffector function for heme, although more indirect explanations are tenable. A role for the ROX1 gene product in transcriptional regulation can be inferred from the observation that there was no inhibition of ANB1 expression by heme in rox1 mutants. Judging from this epistasis the rox1 phenotype is not due to a defect in heme production; this would indicate that the ROX1 factor functions by mediating the effect of heme on transcription.