A putative operon containing homologues of essential eukaryotic sterol biosynthetic enzymes, squalene monooxygenase and oxidosqualene cyclase, has been identified in the genome of the prokaryote Methylococcus capsulatus. Expression of the squalene monooxygenase yielded a protein associated with the membrane fraction, while expression of oxidosqualene cyclase yielded a soluble protein, contrasting with the eukaryotic enzyme forms. Activity studies with purified squalene monooxygenase revealed a catalytic activity in epoxidation of 0.35 nmol oxidosqualene produced/min/nmol squalene monooxygenase, while oxidosqualene cyclase catalytic activity revealed cyclization of oxidosqualene to lanosterol with 0.6 nmol lanosterol produced/min/nmol oxidosqualene cyclase and no other products observed. The presence of prokaryotic sterol biosynthesis is still regarded as rare, and these are the first representatives of such prokaryotic enzymes to be studied, providing new insight into the evolution of sterol biosynthesis in general.