The marine non-heterocystous, filamentous cyanobacteriumPhormidium valderianum BDU 30501, which failed to grow in the absence of combined nitrogen in the medium, grew when supplemented with ampicillin. Growth in terms of both protein as well as chlorophyll was proportional to the concentration of ampicillin up to 2000 g ml^–1. With the hydroxylamine assay, the organism was found to produce -lactamase extracellularly with activity reaching a maximum within 6 h of incubation. The maximum production and activity of the enzyme in the culture filtrate was at pH 7 at a concentration of 750 g ml^–1 ampicillin and at 25°C. The crude enzyme was thermolabile, because temperatures above 0°C on storage resulted in the loss of activity within hours. The enzyme could be induced both by ampicillin as well as benzyl penicillin, but ampicillin proved to be a more suitable substrate both in terms of induction as well as activity. This is the first report of an antibiotic serving as a nitrogen source for an organism.