We study motility-induced phase separation (MIPS) in living active matter, in which cells interact through chemical signaling, or quorum sensing. In contrast to previous theories of MIPS, our multiscale continuum model accounts explicitly for genetic regulation of signal production and motility. Through analysis and simulations, we derive a new criterion for the onset of MIPS that depends on features of the genetic network. Furthermore, we identify and characterize a new type of oscillatory instability that occurs when gene regulation inside cells promotes motility in higher signal concentrations.