Ginseng (Panax ginseng C.A. Meyer) is one of the most popular medicinal herbs and contains pharmacologically active components, ginsenosides, in its roots. Ginsenosides, a class of tetracyclic triterpene saponins, are thought to be synthesized from dammarenediol-II after hydroxylation by the Cyt P450 (CYP) enzyme and then glycosylation by glycosyltransferase (GT). However, no genes encoding the hydroxylation and glycosylation in ginsenoside biosynthesis have been identified. Here, we identify protopanaxadiol synthase, which is a CYP enzyme (CYP716A47), to be involved in the hydroxylation of dammarenediol-II at the C-12 position to yield protopanaxadiol. Nine putative full CYP sequences were isolated from the expressed sequence tags (ESTs) of methyl jasmonate (MeJA)-treated adventitious ginseng roots. The CYP716A47 gene product was selected as the putative protopanaxadiol synthase because this gene was transcriptionally activated not only by MeJA treatment but also in transgenic ginseng that overexpresses squalene synthase and overproduces ginsenosides. In vitro enzymatic activity assays revealed that CYP716A47 catalyzed the oxidation of dammarenediol-II to produce protopanaxadiol. Ectopic expression of CYP716A47 in recombinant WAT21 yeasts that were fed dammarenediol-II yielded protopanaxadiol. Furthermore, co-expression of the dammarenediol synthase gene (PgDDS) and CYP716A47 in yeast yielded protopanaxadiol without adding dammarenediol-II. The chemical structures of the protopanaxadiol products from dammarenediol-II were confirmed using liquid chromatography-atmospheric pressure chemical ionization mass spectrometry (LC/APCIMS). Thus, CYP716A47 is a dammarenediol 12-hydroxylase that produces protopanaxadiol from dammarenediol-II.