Nitrogen is extremely important in agriculture because it is a constituent of proteins, nucleic acids and other essential molecules in all organisms. Most of this nitrogen is derived from reduced or oxidized forms of N in the soil by growing plants, because plants and animals are unable to utilize N2, which is abundant in the atmosphere. Under most cropping conditions N is limiting for growth and is provided in fertilizers, usually at rates of between 50 and 300 kg of N per ha per year (Anonymous, 1979). The only other sources available to plants are from decomposing organic matter, soil reserves, biological nitrogen fixation, the little that is deposited in rainfall and from other sources such as automobile exhausts. Biological nitrogen fixation, the enzymic conversion of N2 gas to ammonia, is much the most important source of fixed nitrogen entering those soils which receive less than about 5 kg N per ha per year from fertilizers. The reduction of N2 is catalysed by the nitrogenase system, which is very similar in composition and function in all prokaryotes which produce it Indeed, subunits of nitrogenase obtained from different nitrogen-fixing species can often be mixed to produce a functional system (Emerich and Burris, 1978). In addition, DNA coding for the structural proteins is so highly conserved in sequence that this coding has been used in hybridization experiments to demonstrate the presence of these genes in all nitrogen-fixing species of prokaryotes tested (Mazur, Rice and Haselkorn, 1980; Ruvkun and Ausubel, 1980). Nitrogenase is found only in prokaryotic micro-organisms and thus eukaryotes, such as plants!» can benefit from N2 fixation only jf they interact with N2-fixing species of micro-organism or obtain the fixed N after the death of the organisms. Nitrogenase functions only under anaerobic conditions because it is irreversibly inactivated by oxygen. The fixation ofN2 requires large amounts of energy, about 30 moles of ATP per mole N2 reduced (Hill, 1976; Schubert and Wolk, 1982), and thus can act as a major drain for energy produced by N2-fixing micro-organisnls. The requirement for an anaerobic environment and large amounts of energy presents problems to the micro-organisms that fix N2 and to the geneticists who wish to extend the range of N2..fixing organisms. Many micro..organisms fix N2 anaerobically and thus avoid the oxygen problem. However, energy production from organic compounds is usually much more efficient when they are metabolized by oxidative phosphorylation. Thus, in general, nitrogen fixation under aerobic or microaerobic conditions should be more efficient, unless too much energy is lost in protecting the enzyme from oxygen or replacing oxygen-damaged proteins. An important consequence of the large energy cost for biological nitrogen fixation is that the activity of nitrogenase needs to be regulated very carefully to ensure that only the required amount of fixed N is produced. We discuss the regulation of N2 fixation in Klebsiella pneumoniae in some detail in this chapter because a full understanding of how nitrogenase is regulated will be necessary if the transfer of N 2 fixation genes (nij') into other species, or even plants, is to be beneficial to the recipient organism. The preceding remarks about the energy requirement and oxygen stability of nitrogenase point to two of the most important problems that will be faced in transferring nijgenes to new hosts. In this review we will discuss other potential problems and show how our knowledge of the genetics of nitrogen fixation might be exploited in future.