Melleolides and related fungal sesquiterpenoid aryl esters are antimicrobial and cytotoxic natural products derived from cultures of the Homobasidiomycetes genus Armillaria. The initial step in the biosynthesis of all melleolides involves cyclization of the universal sesquiterpene precursor farnesyl diphosphate to produce protoilludene, a reaction catalyzed by protoilludene synthase. We achieved the partial purification of protoilludene synthase from a mycelial culture of Armillaria gallica and found that 6-protoilludene was its exclusive reaction product. Therefore, a further isomerization reaction is necessary to convert the 6-7 double bond into the 7-8 double bond found in melleolides. We expressed an A. gallica protoilludene synthase cDNA in Escherichia coli, and this also led to the exclusive production of 6-protoilludene. Sequence comparison of the isolated sesquiterpene synthase revealed a distant relationship to other fungal terpene synthases. The isolation of the genomic sequence identified the 6-protoilludene synthase to be present as a single copy gene in the genome of A. gallica, possessing an open reading frame interrupted with eight introns.