The staphylococcal accessory gene regulatory (agr) operon is a well-characterised global regulatory element that is important in the control of virulence gene expression for Staphylococcus aureus, a major human pathogen. Hence, accurate and sensitive measurement of Agr activity is central in understanding the virulence potential of Staphylococcus aureus, especially in the context of Agr dysfunction, which has been linked with persistent bacteraemia and reduced susceptibility to glycopeptide antibiotics. Agr function is typically measured using a synergistic haemolysis CAMP assay, which is believe to report on the level of expression of one of the translated products of the agr locus, delta toxin. In this study we develop a vesicle lysis test (VLT) that is specific to small amphipathic peptides, most notably delta and Phenol Soluble Modulin (PSM) toxins. To determine the accuracy of this VLT method in assaying Agr activity, we compared it to the CAMP assay using 89 clinical Staphylococcus aureus isolates. Of the 89 isolates, 16 were designated as having dysfunctional Agr systems by the CAMP assay, whereas only three were designated as such by VLT. Molecular analysis demonstrated that of these 16 isolates, the 13 designated as having a functional Agr system by VLT transcribed rnaIII and secreted delta toxin, demonstrating they have a functional Agr system despite the results of the CAMP assay. The agr locus of all 16 isolates was sequenced, and only the 3 designated as having a dysfunctional Agr system contained mutations, explaining their Agr dysfunction. Given the potentially important link between Agr dysfunction and clinical outcome, we have developed an assay that determines this more accurately than the conventional CAMP assay.