Cyanobacteria have played a significant role in Earth history as primary producers and the ultimate source of atmospheric oxygen. To date, however, how and when the group diversified has remained unclear. Here, we combine molecular phylogenetic and paleontological studies to elucidate the pattern and timing of early cyanobacterial diversification. 16S rRNA, rbcL, and hetR genes were sequenced from 20 cyanobacterial strains distributed among 16 genera, with particular care taken to represent the known diversity of filamentous taxa. Unlike most other bacteria, some filamentous cyanobacteria evolved a degree of cell differentiation, producing both specialized cells for nitrogen fixation (heterocysts) and resting cells able to endure environmental stress (akinetes). Phylogenetic analyses support the hypothesis that cyanobacteria capable of cell differentiation are monophyletic, and the geological record provides both upper and lower bounds on the origin of this clade. Fossil akinetes have been identified in 1,650- to 1,400-mega-annum (Ma) cherts from Siberia, China, and Australia, and what may be the earliest known akinetes are preserved in approximately 2,100-Ma chert from West Africa. Geochemical evidence suggests that oxygen first reached levels that would compromise nitrogen fixation (and hence select for heterocyst differentiation) 2,450-2,320 Ma. Integrating phylogenetic analyses and geological data, we suggest that the clade of cyanobacteria marked by cell differentiation diverged once between 2,450 and 2,100 Ma, providing an internal bacterial calibration point for studies of molecular evolution in early organisms.