Serratia sp. ATCC 39006 produces the carbapenem antibiotic, carbapen‐2‐em‐3‐carboxylic acid and the red pigment, prodigiosin. We have previously reported the characterization of a gene, carR, controlling production of carbapenem in this strain. We now describe further characterization of the carR locus to locate the genes encoding carbapenem biosynthetic and resistance functions. A novel family of diverse proteins showing sequence similarity to the C‐terminal domain of CarF (required for carbapenem resistance) is described. We also report the isolation of the locus involved in the biosynthesis of the red pigment, prodigiosin. A cosmid containing ≈ 35 kb of the Serratia chromosome encodes synthesis of the pigment in the heterologous host, Erwinia carotovora, demonstrating, for the first time, that the complete prodigiosin biosynthetic gene cluster had been cloned and functionally expressed. We report the isolation of a third locus in Serratia, containing convergently transcribed genes, smaI and smaR, encoding LuxI and LuxR homologues respectively. SmaI directs the synthesis of N‐acyl homoserine lactones involved in the quorum sensing process. We demonstrate that biosynthesis of the two secondary metabolites, carbapenem antibiotic and prodigiosin pigment, is under pheromone‐mediated transcriptional regulation in this bacterium. Finally, we describe a new prodigiosin‐based bioassay for detection of some N‐acyl homoserine lactones.