Production of commercially interesting sesquiterpenes was previously examined in plants and microorganisms such as Escherichia coli and Saccharomyces cerevisiae. We here investigate the potential of the mushroom Schizophyllum commune for the production of sesquiterpenes. Genomic analysis of S. commune revealed that the mevalonate pathway required for the synthesis of the farnesyl diphosphate substrate for sesquiterpene production is operational. Introduction of a valencene synthase gene resulted in production of the sesquiterpene (+)-valencene, both in mycelium and in fruiting bodies. Levels of (+)-valencene in culture media of strains containing a mutated RGS regulatory protein gene (thn) were increased fourfold compared to those in wild-type transformants. Up to 16 mg L(-1) (+)-valencene was produced in these strains. In addition, the amount of (+)-valencene containing n-dodecane recovered from the culture medium increased sixfold to sevenfold in the thn mutant strains due to the absence of schizophyllan.