Certain filamentous nitrogen-fixing cyanobacteria generate signals that direct their own multicellular development. They also respond to signals from plants that initiate or modulate differentiation, leading to the establishment of a symbiotic association. An objective of this review is to describe the mechanisms by which free-living cyanobacteria regulate their development and then to consider how plants may exploit cyanobacterial physiology to achieve stable symbioses. Cyanobacteria that are capable of forming plant symbioses can differentiate into motile filaments called hormogonia and into specialized nitrogen-fixing cells called heterocysts. Plant signals exert both positive and negative regulatory control on hormogonium differentiation. Heterocyst differentiation is a highly regulated process, resulting in a regularly spaced pattern of heterocysts in the filament. The evidence is most consistent with the pattern arising in two stages. First, nitrogen limitation triggers a nonrandomly spaced cluster of cells (perhaps at a critical stage of their cell cycle) to initiate differentiation. Interactions between an inhibitory peptide exported by the differentiating cells and an activator protein within them causes one cell within each cluster to fully differentiate, yielding a single mature heterocyst. In symbiosis with plants, heterocyst frequencies are increased 3- to 10-fold because, we propose, either differentation is initiated at an increased number of sites or resolution of differentiating clusters is incomplete. The physiology of symbiotically associated cyanobacteria raises the prospect that heterocyst differentiation proceeds independently of the nitrogen status of a cell and depends instead on signals produced by the plant partner.