Daunomycin is an antitumor antibiotic known to inhibit DNA replication and transcription. Although the inhibition is assumed to be caused by a direct interaction of the drug with DNA, the exact effect of daunomycin on the higher order DNA structure remains uncertain. We studied the effect of daunomycin on DNA compacted states using fluorescence and electron microscopies. Structural changes in individual DNA molecules were examined under the following conditions. T4 phage DNA (166 kbp) was first compacted by spermidine followed by the addition of daunomycin to the compacted DNA. A direct observation of individual single duplex DNAs by fluorescence microscopy indicated that daunomycin induced unfolding of the compacted DNA. Electron microscopic observation of the morphological changes of the higher order DNA structure supported the results obtained by fluorescence microscopy. We discuss here the mechanisms of the unfolding of the compacted structure following intercalation of daunomycin into DNA particularly in terms of the free energy.