When prespore cells approach the top of the stalk in a Dictyostelium fruiting body, they rapidly encapsulate in response to the signalling peptide SDF-2. Glutamate decarboxylase, the product of the gadA gene, generates GABA from glutamate. gadA is expressed exclusively in prespore cells late in development. We have found that GABA induces the release of the precursor of SDF-2, AcbA, from prespore cells. GABA also induces exposure of the protease domain of TagC on the surface of prestalk cells where it can convert AcbA to SDF-2. The receptor for GABA in Dictyostelium, GrlE, is a seven-transmembrane G-protein-coupled receptor that is most similar to GABA(B) receptors. The signal transduction pathway from GABA/GrlE appears to be mediated by PI3 kinase and the PKB-related protein kinase PkbR1. Glutamate acts as a competitive inhibitor of GABA functions in Dictyostelium and is also able to inhibit induction of sporulation by SDF-2. The signal transduction pathway from SDF-2 is independent of the GABA/glutamate signal transduction pathway, but the two appear to converge to control release of AcbA and exposure of TagC protease. These results indicate that GABA is not only a neurotransmitter but also an ancient intercellular signal.