Over the last 10 years, we have witnessed major advances in our understanding of natural product biosynthesis, including the genetic basis for toxin production by numerous groups of cyanobacteria. Cyanobacteria produce an unparalleled array of bioactive secondary metabolites, including alkaloids, polyketides and non-ribosomal peptides, some of which are potent toxins. This review addresses the molecular genetics underlying the production of hepatotoxins, microcystin and nodularin in fresh and brackish water. These toxins pose a serious threat to human health and their occurrence in water supplies is increasing, because of the prevalence of toxic algal blooms worldwide. Toxin biosynthesis gene-cluster-associated transposition and the natural transformability of certain species suggest a broader distribution of toxic cyanobacterial taxa. The information gained from the discovery of these toxin biosynthetic pathways has enabled the genetic screening of various environments for drinking-water quality management. Understanding the role of cyanotoxins in the producing microorganisms and the environmental regulation of their biosynthesis genes may also suggest the means of controlling toxic-bloom events.