A new chroococcalean cyanobacterium is described from approximately 1-billion-year-old non-marine deposits of the Torridonian Group of Scotland and the Nonesuch Formation of Michigan, USA. Individual cells of the new microfossil, Eohalothece lacustrina gen. et sp. nov., are associated with benthic microbial biofilms, but the majority of samples are recovered in palynological preparations in the form of large, apparently planktonic colonies, similar to extant species of Microcystis. In the Torridonian, Eohalothece is associated with phosphatic nodules, and we have developed a novel hypothesis linking Eohalothece to phosphate deposition in ancient freshwater settings. Extant cyanobacteria can be prolific producers of extracellular microcystins, which are non-ribosomal polypeptide phosphatase inhibitors. Microcystins may have promoted the retention and concentration of sedimentary organic phosphate prior to mineralization of francolite and nodule formation. This has a further implication that the Torridonian lakes were nitrogen limited as the release of microcystins is enhanced under such conditions today. The abundance and wide distribution of Eohalothece lacustrina attests to the importance of cyanobacteria as oxygen-producing photoautotrophs in lacustrine ecosystems at the time of the Mesoproterozoic–Neoproterozoic transition.