The phosphorelay signal transduction system activates developmental transcription in sporulation of Bacillus subtilis by phosphorylation of aspartyl residues of the Spo0F and Spo0A response regulators. The phosphorylation level of these response regulators is determined by the opposing activities of protein kinases and protein aspartate phosphatases that interpret positive and negative signals for development in a signal integration circuit. The RapA protein aspartate phosphatase of the phosphorelay is regulated by a peptide that directly inhibits its activity. This peptide is proteolytically processed from an inactive pre-inhibitor protein encoded in the phrA gene. The pre-inhibitor is cleaved by the protein export apparatus to a putative pro-inhibitor that is further processed to the active inhibitor peptide and internalized by the oligopeptide permease. This export-import circuit is postulated to be a mechanism for timing phosphatase activity where the processing enzymes regulate the rate of formation of the active inhibitor. The processing events may, in turn, be controlled by a regulatory hierarchy. Chromosome sequencing has revealed several other phosphatase-prepeptide gene pairs in B. subtilis, suggesting that the use of this mechanism may be widespread in signal transduction.