Photorhabdus and Xenorhabdus species have mutualistic associations with nematodes and an entomopathogenic stage^1,2 in their life cycles. In both stages, numerous specialized metabolites are produced that have roles in symbiosis and virulence^3,4. Although regulators have been implicated in the regulation of these specialized metabolites^3,4, how small regulatory RNAs (sRNAs) are involved in this process is not clear. Here, we show that the Hfq-dependent sRNA, ArcZ, is required for specialized metabolite production in Photorhabdus and Xenorhabdus. We discovered that ArcZ directly base-pairs with the mRNA encoding HexA, which represses the expression of specialized metabolite gene clusters. In addition to specialized metabolite genes, we show that the ArcZ regulon affects approximately 15% of all transcripts in Photorhabdus and Xenorhabdus. Thus, the ArcZ sRNA is crucial for specialized metabolite production in Photorhabdus and Xenorhabdus species and could become a useful tool for metabolic engineering and identification of commercially relevant natural products.