Lolitrems are potent tremorgenic mycotoxins that are synthesised by clavicipitaceous fungal endophytes of the Epichloë/Neotyphodium group in association with grasses. These indole-diterpenes confer major ecological benefits on the grass-endophyte symbiotum. A molecular signature for diterpene biosynthesis is the presence of two geranylgeranyl diphosphate (GGPP) synthases. Using degenerate primers for conserved domains of fungal GGPP synthases, we cloned two such genes, ltmG and ggsA, from Neotyphodium lolii. Adjacent to ltmG are two genes, ltmM and ltmK, that are predicted to encode an FAD-dependent monooxygenase and a cytochrome P450 monooxygenase, respectively. The cluster of ltm genes is flanked by AT-rich retrotransposon DNA that appears to have undergone extensive repeat induced point (RIP) mutation. Epichloë festucae, the sexual ancestor of N. lolii, contains an identical ltm gene cluster, but lacks the retrotransposon "platform'' on the right flank. Associations established between perennial ryegrass and an E. festucae mutant deleted for ltmM lack detectable levels of lolitrems. A wild-type copy of ltmM complemented this phenotype, as did paxM from Penicillium paxilli. Northern hybridization and RT-PCR analysis showed that all three genes are weakly expressed in culture but strongly induced in planta. The relative endophyte biomass in these associations was estimated by real-time PCR to be between 0.3 and 1.9%. Taking this difference into account, the steady-state levels of the ltm transcripts are about 100-fold greater than the levels of the endogenous ryegrass beta-tubulin (beta -Tub1) and actin (Act1) RNAs. Based on these results we propose that ltmG, ltmM and ltmK are members of a set of genes required for lolitrem biosynthesis in E. festucae and N. lolii.