The indole-diterpene paxilline is a potent tremorgenic mammalian mycotoxin and a known inhibitor of maxi-K ion channels. The gene cluster responsible for paxilline biosynthesis in Penicillium paxilli was identified by mapping four large plasmid-induced chromosome deletions. The cluster is predicted to lie within a 50 kb region of chromosome Va and to contain 17 genes, including a geranylgeranyl pyrophosphate (GGPP) synthase (paxG), two FAD-dependent monooxygenases (paxM and N), two cytochrome P450 monooxygenases (paxP and Q), a dimethylallyltryptophan (DMAT) synthase (paxD) and two possible transcription factors (paxR and paxS), which contain a Zn(II)2Cys6 DNA-binding motif. Targeted replacement of paxG confirmed that it is essential for paxilline biosynthesis but dispensable for growth. The GGPP for primary metabolism is predicted to be provided by a second GGPP synthase (ggs1) that was cloned, sequenced and mapped to chromosome IV. Semi-quantitative reverse transcriptase-polymerase chain reaction analysis demonstrated that the expression of paxG, paxM and paxP in submerged liquid cultures of P. paxilli increased dramatically with the onset of paxilline biosynthesis. In contrast, the expression of beta-tubulin (tub2) and ggs1 was not induced. This is the first description of the molecular cloning and genetic analysis of an indole-diterpene gene cluster.