Here we report that tgdA, a novel gene encoding a putative transglycosylase, affects both the morphological differentiation and the yield of blue-pigmented compound actinorhodin in Streptomyces coelicolor. The tgdA null mutant displays sparse aerial hyphae and irregular spore chains frequently lacking chromosomal DNA. Elevated actinorhodin production coincides with the overexpression of actII-orf4 in mutant. tgdA expression is temporally and developmentally regulated. The tgdA orthologs in Streptomyces avermilitis and Streptomyces lividans also affect differentiation.