In this article we summarize the current knowledge of Baltic Sea cyanobacteria, focusing on diversity, toxicity, and nitrogen fixation in the filamentous heterocystous taxa. We also review the recent results of our microbial diversity studies in planktonic and benthic habitats in the Baltic Sea. Based on molecular analyses, we have improved the understanding of cyanobacterial population structure by assessing genetic diversity within species that are morphologically inseparable. Moreover, we have studied microbial functions such as toxin production and nitrogen fixation in situ under different environmental conditions. Phosphorus limitation of bloom-forming, nitrogen-fixing cyanobacteria was clearly verified, emphasizing the importance of continuous efforts to reduce this element in the Baltic Sea. We have designed a rapid and reliable detection method for the toxic cyanobacterium Nodularia spumigena, which can be used to study bloom formation of this important toxin producer.