Production of diffusible pigment in a strain of Staphylococcus aureus (WG260) has been associated with a plasmid of c.26 megadaltons which can be co-transduced with inducible erythromycin and spectinomycin resistance. However, the diffusible pigment plasmid can be lost from the transductants without loss of inducible erythromycin and spectinomycin resistance. The evidence suggests that the resistance determinants are located on an element similar or identical to transposon Tn554, and, during transduction of the diffusible pigment plasmid, a copy of the resistance determinants always inserts into the chromosome of the transductant. This is the first report of such an element occurring on a plasmid in a clinical isolate of S. aureus. To date, the diffusible pigment plasmid has been isolated only as the open-circular conformation of plasmid DNA and is probably a highly relaxable plasmid. The production of the orange, diffusible pigment was shown to be independent of colony pigmentation.