Bacteriophage lambda with mutations in genes that control prohead assembly and other head precursors cannot mature their DNA. In this paper we present evidence that the failure of these phage mutants to mature DNA is a reflection of a mechanism that modulates terminase nicking activity during normal phage development. We have constructed plasmids that contain the lambda-cohesive end site (cos) and the genes that code for DNA terminase, the enzyme that matures DNA by cutting at cos. The DNA terminase genes are under control of a thermosensitive cI repressor. These plasmids lack most of the genes involved in prohead morphogenesis and other head precursors. However, when repression is lifted by destruction of the thermosensitive repressor, the terminase synthesized is able to cut almost 100% of the plasmids. Therefore, these plasmids can mature in the absence of proheads and other head gene products. The plasmids are also able to complement mutants of lambda deficient in terminase and DNA maturation. However, in these complementation experiments, if the phage carry mutations in prohead genes E or B, not only is phage DNA maturation blocked, but the plasmid also fails to mature. These experiments show that, in the absence of proheads, phage lambda produces a trans-acting inhibitor of maturation. The genetic determinant of this inhibitor maps in a region extending from the middle of gene B to the end of gene C. A model is proposed in which the nicking activity of DNA-bound terminase is inhibited by the trans-acting inhibitor. Prohead (and other factors) binding to this complex would release the block to allow DNA cleavage and packaging.