To sense its population density and to trigger entry into the stress-resistant dauer larval stage, Caenorhabditis elegans uses the dauer pheromone, which consists of ascaroside derivatives with short, fatty acid-like side chains. Although the dauer pheromone has been studied for 25 years, its biosynthesis is completely uncharacterized. The daf-22 mutant is the only known mutant defective in dauer pheromone production. Here, we show that daf-22 encodes a homolog of human sterol carrier protein SCPx, which catalyzes the final step in peroxisomal fatty acid beta-oxidation. We also show that dhs-28, which encodes a homolog of the human d-bifunctional protein that acts just upstream of SCPx, is also required for pheromone production. Long-term daf-22 and dhs-28 cultures develop dauer-inducing activity by accumulating less active, long-chain fatty acid ascaroside derivatives. Thus, daf-22 and dhs-28 are required for the biosynthesis of the short-chain fatty acid-derived side chains of the dauer pheromone and link dauer pheromone production to metabolic state.