Biotransformation of the highly substituted pyridine derivative 2-amino-4-methyl-3-nitropyridine by Cunninghamella elegans ATCC 26269 yielded three products each with a molecular weight of 169 Da which were identified as 2-amino-5-hydroxy-4-methyl-3-nitropyridine, 2-amino-4-hydroxymethyl-3-nitropyridine, and 2-amino-4-methyl-3-nitropyridine-1-oxide. Biotransformation by Streptomyces antibioticus ATCC 14890 gave two different products each with a molecular weight of 169 Da; one was acid labile and converted to the other stable product under acidic conditions. The structure of the stable product was established as 2-amino-4-methyl-3-nitro-6(1H)-pyridinone, and that of the less stable product was assigned as its tautomer 2-amino-6-hydroxy-4-methyl-3-nitropyridine. Four of the five biotransformation products are new compounds. Several strains of Aspergillus also converted the same substrate to the lactam 2-amino-4-methyl-3-nitro-6(1H)-pyridinone. Microbial hydroxylation by C. elegans was found to be inhibited by sulfate ion. In order to improve the yield and productivity of the 5-hydroxylation reaction by C. elegans, critical process parameters were determined and Design of Experiments (DOE) analyses were performed. Biotransformation by C. elegans was scaled up to 15-l fermentors providing 2-amino-5-hydroxy-4-methyl-3-nitropyridine at ca. 13 % yield in multi-gram levels. A simple isolation process not requiring chromatography was developed to provide purified 2-amino-5-hydroxy-4-methyl-3-nitropyridine of excellent quality.