Streptomyces coelicolor has nine SigB-like RNA polymerase sigma factors, several of them implicated in morphological differentiation and/or responses to different stresses. One of the nine, SigN, is the focus of this article. A constructed sigN null mutant was delayed in development and exhibited a bald phenotype when grown on minimal medium containing glucose as carbon source. One of two distinct sigN promoters, sigNP1, was active only during growth on solid medium, when its activation coincided with aerial hyphae formation. Transcription from sigNP1 was readily detected in several whi mutants (interrupted in morphogenesis of aerial mycelium into spores), but was absent from all bld mutants tested, suggesting that sigNP1 activity was restricted to the aerial hyphae. It also depended on sigN, thus sigN was autoregulated. Mutational and transcription studies revealed no functional significance to the location of sigN next to sigF, encoding another SigB-like sigma factor. We identified another potential SigN target, nepA, encoding a putative small secreted protein. Transcription of nepA originated from a single, aerial hyphae-specific and sigN-dependent promoter. While in vitro run-off transcription using purified SigN on the Bacillus subtilis ctc promoter confirmed that SigN is an RNA polymerase sigma factor, SigN failed to initiate transcription from sigNP1 and from the nepA promoter in vitro. Additional in vivo data indicated that further nepA upstream sequences, which are likely to bind a potential activator, are required for successful transcription. Using a nepA–egfp transcriptional fusion we located nepA transcription to a novel compartment, the ‘subapical stem’ of the aerial hyphae. We suggest that this newly recognized compartment defines an interface between the aerial and vegetative parts of the Streptomyces colony and might also be involved in communication between these two compartments.