Protoberberine alkaloids, including berberine, palmatine, and berberrubine, are produced by medicinal plants and are known to have various pharmacological effects. We isolated two berberine-utilizing bacteria, Sphingobium sp. strain BD3100 and Rhodococcus sp. strain BD7100, from soil collected at a natural medicine factory. BD3100 had the unique ability to utilize berberine or palmatine as the sole carbon and energy source. BD3100 produced demethyleneberberine in berberine-supplemented medium. In a resting-cell incubation with berberine, BD3100 produced 11-hydroxyberberine; the structure of 11-hydroxyberberine was determined by detailed analysis of NMR and MS spectroscopic data. α-Naphthoflavone, miconazole, and ketoconazole, which are known inhibitors of cytochrome P450, interfered with BD3100 metabolism of berberine in resting cells. Inhibition by miconazole led to the production of a new compound, 11-hydroxydemethyleneberberine. In a resting-cell incubation with palmatine, BD3100 generated 11-hydroxypalmatine. This work represents the first report of the isolation and characterization of novel berberine-utilizing aerobic bacteria for the production of 11-hydroxylation derivatives of berberine and palmatine.