Expression of the amidase operon of Pseudomonas aeruginosa is controlled by AmiC, the ligand sensor and negative regulator, and AmiR the transcription antitermination factor activator. We have titrated out AmiC repression activity in vivo by increased AmiR production in trans and shown AmiC regulation of the antitermination activity of AmiR by a steric hindrance mechanism. In the presence of the co-repressor butyramide we have isolated a stable AmiC.AmiR complex. Addition of the inducing ligand acetamide to the complex trips the molecular switch, causing complex dissociation and release of AmiR. The AmiC.AmiR butyramide complex exhibits acetamide-dependent, sequence-specific RNA binding activity and a K(d) of 1.0 nm has been calculated for the AmiR.RNA interaction. The results show that amidase operon expression is controlled by a novel type of signal transduction system in which activity of a site-specific RNA binding activator is regulated via a sequestration mechanism.