Streptomyces are soil-dwelling bacteria renowned for their production of various secondary metabolites, including antibiotics. In Streptomyces coelicolor, several bld genes, including bldG regulate aerial hyphae formation and antibiotic production. bldG encoding a putative anti-sigma factor antagonist, is co-transcribed with downstream orf3 encoding a putative anti-sigma factor. We hypothesize that BldG and Orf3 function as a regulatory pair in S. coelicolor, similar to their Bacillus homologues. Our goal is to elucidate the mechanism by which BldG exerts its regulatory activity and examine the role of BldG phosphorylation. Chemical crosslinking, immunoaffinity chromatography and comparative Western analysis identified BldG-protein complexes of the size of BldG dimer and BldG-Orf3 complex. During purification from E. coli, BldG and Orf3 were observed to form homodimers. Protein interactions between BldG-Orf3, BldG-BldG and Orf3-Orf3 were further confirmed using Bacterial-two-hybrid system. The role of BldG phosphorylation was investigated by analyzing Orf3 interactions with two different mutant BldG proteins that mimic the phosphorylated and nonphosphorylated forms of BldG. The phosphorylated BldG form is unable to interact with Orf3 and dimerize in contrast to the nonphosphorylated form. Based on these results, we propose a model for BldG function: BldG and Orf3 interact as homodimers, and most likely play antagonistic roles. The phosphorylation state of BldG not only affects this interaction but also its dimerization, thus regulating BldG activity. This is the first evidence of interaction, and the first indication that these proteins function as a regulatory pair in the network that governs aerial hyphae formation and antibiotic production in S. coelicolor.