Deacetoxycephalosporin C (DAOC), a precursor of cephalosporins excreted by Cephalosporium and Streptomyces species, has been produced in Penicillium chrysogenum transformed with DNA containing a hybrid penicillin N expandase gene (cefEh) and a hybrid isopenicillin N epimerase gene (cefDh). DAOC from a P. chrysogenum transformant was identified by ultraviolet light (UV), high performance liquid chromatography (HPLC), nuclear magnetic resonance (NMR) and mass spectrum analyses. P. chrysogenum transformed with DNA containing cefEh without cefDh did not produce DAOC. Untransformed P. chrysogenum produced penicillin V (phenoxymethylpenicillin) but not DAOC. Transformants also produced penicillin V but, in general, less than untransformed P. chrysogenum. The cefEh and cefDh genes were constructed by replacing the open reading frame (ORF) of cloned P. chrysogenum pcbC and penDE genes with the ORF of the Streptomyces clavuligerus expandase gene, cefE, and the ORF of the Streptomyces lipmanii epimerase gene, cefD, respectively. Analyses of representative transformants suggested that production of DAOC occurred via cefEh and cefDh genes stably integrated in the P. chrysogenum genome. DNA from untransformed P. chrysogenum did not hybridize to cefE or cefD gene probes.