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The evolution of multicellularity required novel mechanisms for intercellular communication, but their origin is unclear. Dictyostelium cells exchange signals to position specialized cell types in multicellular spore-bearing structures. These signals activate complex pathways that converge on activation of cAMP-dependent protein kinase (PKA). Genes controlling PKA were detected in the Dictyostelid unicellular ancestors, which like most protists form dormant cysts when experiencing environmental stress. We deleted PKA and the adenylate cyclases AcrA and AcgA, which synthesize cAMP for PKA activation, in the intermediate species Polysphondylium, which can develop into either cysts or into multicellular structures. Loss of PKA prevented multicellular development, but also completely blocked encystation. Loss of AcrA and AcgA, both essential for sporulation in Dictyostelium, did not affect Polysphondylium sporulation, but prevented encystation. We conclude that multicellular cAMP signalling was co-opted from PKA regulation of protist encystation with progressive refunctionalization of pathway components.