Exopolysaccharides (EPS) are of high significance in bacterial biofilm formation. However, the effects of EPS cluster(s) on biofilm formation in Paenibacillus species are little known. In this study, we have shown that Paenibacillus polymyxa WLY78, a N₂-fixing bacterium, can form biofilm. EPS is the major component of the extracellular matrix. The genome of P. polymyxa WLY78 contains two putative gene clusters (designated pep-1 cluster and pep-2 cluster). The pep-1 cluster is composed of 12 putative genes (pepO-lytR) co-located in a 13 kb region. The pep-2 cluster contains 17 putative genes (pepA-pepN) organized as an operon in a 20 kb region. Mutation analysis reveals that the pep-2 cluster is involved in EPS biosynthesis and biofilm formation. Disruption of the pep-2 cluster also leads to the enhancement of motility and change of the colony morphology. In contrast, disruption of the pep-1 cluster does not affect EPS synthesis or biofilm formation. More importantly, the biofilm allowed P. polymyxa WLY78 to fix nitrogen in aerobic conditions, suggesting that biofilm may provide a microaerobic environment for nitrogenase synthesis and activity.