Anabaena oryzae ARM 570 was examined for its growth (chlorophyll and protein), heterocyst frequency, nitrogenase (acetylene reduction) activity, ammonia excretion, and glutamine synthetase and nitrate reductase in response to two levels of urea-N vis-à-vis N2-N. Growth of cyanobacterium increased with duration of incubation. Reduction in heterocyst frequency (40%) was observed at 30 ppm of urea-N, whereas at 60 ppm of urea-N, filaments were completely devoid of heterocysts and no nitrogenase activity was observed. Maximum excretion of ammonia occurred at 30 ppm of urea-N, which was concomitant with minimum glutamine synthetase activity. These results suggested that A. oryzae could be effectively utilized in cyanobacterial biofertilizer programme even in the presence of combined nitrogen, for improving N-budget in rice cultivation.