In the field of cell-cell communication, an emerging class of extracellular signaling peptides that function intracellularly has been identified in Gram-positive bacteria. One illustrative member of this group is the Phr family of extracellular signaling peptides of Bacillus subtilis. The Phr signaling peptides are secreted by the bacterium, and then, despite the presence of intracellular peptidases, they are actively transported into the cell where they interact with intracellular receptors to regulate gene expression. The intracellular receptors are members of a family of aspartyl-phosphate phosphatases, the Rap phosphatases. These phosphatases cause the dephosphorylation of response regulator proteins, ubiquitous regulatory proteins in bacteria. Immediately downstream of the genes for the Rap phosphatases are the genes for the Phr peptides, forming rap phr signaling cassettes. There are at least seven rap phr signaling cassettes in B. subtilis, and the genome sequence of other Gram-positive, endospore-forming bacteria suggests that similar cassettes may also function in these bacteria. In B. subtilis, the rap phr cassettes regulate sporulation, genetic competence, and genes comprising the quorum response (i.e. the response to high cell density). This review will address the mechanism of extracellular Phr signaling peptide production, transport, response, and their role in quorum sensing.