Yeast cells undergo morphological transformations in response to diverse environmental signals. One such event, called pseudohyphal differentiation, occurs when diploid yeast cells are partially starved for nitrogen on a solid agar medium. The nitrogen-starved cells elongate, and a small fraction form filaments that penetrate the agar surface. The molecular basis for the changes in cell morphology and cell cycle in response to nitrogen limitation are poorly defined, in part because the heterogeneous growth states of partially starved cells on agar media are not amenable to biochemical analysis. In this work, we used chemostat cultures to study the role of cell cycle regulators with respect to yeast differentiation in response to nitrogen limitation under controlled, homogeneous culture conditions. We found that Clb1, Clb2, and Clb5 cyclin levels are reduced in nitrogen-limited chemostat cultures compared to levels in rich-medium cultures, whereas the Xbp1 transcriptional repressor is highly induced under these conditions. Furthermore, the deletion of XBP1 prevents the drop in Clb2 levels and inhibits cellular elongation in nitrogen-limited chemostat cultures as well as inhibiting pseudohyphal growth on nitrogen-limited agar media. Deletion of the CLB2 gene restores an elongated morphology and filamentation to the xbp1Delta mutant in response to nitrogen limitation. Transcriptional activation of the XBP1 gene and the subsequent repression of CLB gene expression are thus key responses of yeast cells to nitrogen limitation.