A cosmid bank of Serratia marcescens was established from which DNA fragments were cloned into the plasmid pBR322, which conferred the chromosomally encoded hemolytic activity to Escherichia coli K-12. By transposon mutagenesis with Tn1000 and Tn5 IS50L::phoA (TnphoA), the coding region was assigned to a DNA fragment, designated hly, comprising approximately 7 kilobases. Two proteins with molecular weights of 61,000 (61K protein) and 160,000 (160K protein) were expressed by the pBR322 derivatives and by a plasmid which contained the hly genes under the control of a phage T7 promoter and the T7 RNA polymerase. When strongly overexpressed the 160K protein was released by E. coli cells into the extracellular medium concomitant with hemolytic activity. The genes encoding the 61K and the 160K proteins were transcribed in the same direction. Mutants expressing a 160K protein truncated at the carboxy-terminal end were partially hemolytic. Hemolysis was progressively inhibited by saccharides with increasing molecular weights from maltotriose (Mr 504) to maltoheptaose (Mr 1,152) and was totally abolished by dextran 4 (Mr 4,000). This result and the observed influx of [14C]sucrose into erythrocytes in the presence of hemolytic E. coli transformants under osmotically protective conditions suggest the formation of defined transmembrane channels by the hemolysin.