Cell fate is determined by cell-specific activation of transcription factor sigma(F) after asym metric division during sporulation by Bacillus subtilis. The activity of sigma(F) is governed by SpoIIAA, SpoIIAB, and SpoIIE, a membrane protein localized at the polar septum. SpoIIAB binds to and inhibits of, and SpoIIAA inhibits SpoIIAB, which prevents SpoIIAB from binding to sigma(F). SpoIIAB is also a serine kinase that inactivates SpoIIAA. Here, it is demonstrated that SpoIIE dephosphorylates SpoIIAA-P and overcomes SpoIIAB-mediated inhibition of sigma(F). The finding that SpoIIE is a serine phosphatase links asymmetric division to the pathway governing cell-specific gene transcription.