The epimerization step that converts isopenicillin N into penicillin N during cephalosporin biosynthesis has remained uncharacterized despite its industrial relevance. A transcriptional analysis of a 9-kb region located downstream of the pcbC gene revealed the presence of two transcripts that correspond to the genes named cefD1 and cefD2 encoding proteins with high similarity to long chain acyl-CoA synthetases and acyl-CoA racemases from Mus musculus, Homo sapiens, and Rattus norvegicus. Both genes are expressed in opposite orientations from a bidirectional promoter region. Targeted inactivation of cefD1 and cefD2 was achieved by the two-marker gene replacement procedure. Disrupted strains lacked isopenicillin N epimerase activity, were blocked in cephalosporin C production, and accumulated isopenicillin N. Complementation in trans of the disrupted nonproducer mutant with both genes restored epimerase activity and cephalosporin biosynthesis. However, when cefD1 or cefD2 were introduced separately into the double-disrupted mutant, no epimerase activity was detected, indicating that the concerted action of both proteins encoded by cefD1 and cefD2 is required for epimerization of isopenicillin N into penicillin N. This epimerization system occurs in eukaryotic cells and is entirely different from the known epimerization systems involved in the biosynthesis of bacterial beta-lactam antibiotics.