Photorhabdus and Xenorhabdus bacteria colonize the intestines of the infective soil-dwelling stage of entomophagous nematodes, Heterorhabditis and Steinernema, respectively. These nematodes infect susceptible insect larvae and release the bacteria into the insect blood. The bacteria kill the insect larvae and convert the cadaver into a food source suitable for nematode growth and development. After several rounds of reproduction the nematodes are recolonized by the bacteria before emerging from the insect cadaver into the soil to search for a new host. Photorhabdus and Xenorhabdus bacteria therefore engage in both pathogenic and mutualistic interactions with different invertebrate hosts as obligate components of their life cycle. In this review we aim to describe current knowledge of the molecular mechanisms utilized by Photorhabdus and Xenorhabdus to control their host-dependent interactions. Recent work has established that there is a trade-off between pathogenicity and mutualism in both these species of bacteria suggesting that the transition between these interactions must be under regulatory control. Despite the superficial similarity between the life cycles of these bacteria, it is now apparent that the molecular components of the regulatory networks controlling pathogenicity and mutualism in Photorhabdus and Xenorhabdus are very different.