Penicillins and cephalosporins are produced by a wide variety of microorganisms, including some filamentous fungi, many gram-positive streptomycetes, and a few gram-negative unicellular bacteria. All produce these beta-lactam antibiotics by essentially the same biosynthetic pathway. Recently, most of the penicillin and cephalosporin biosynthetic genes have been cloned, sequenced, and expressed. The biosynthetic genes code for enzymes that possess multifunctional peptide synthetase, cyclase, epimerase, expandase, hydroxylase, lysine aminotransferase, and acetyltransferase activities and are organized in chromosomal gene clusters and coordinately expressed. DNA hybridization screens of streptomycetes demonstrate that beta-lactam biosynthetic genes may be more widespread in nature than is indicated by conventional antibiotic screens. They offer the possibility of expanding the search for organisms with potential to make new beta-lactam antibiotics. Attempts to improve current yields of beta-lactams in production strains by introducing into them additional copies of biosynthetic genes have been partially successful. Comparative sequence analysis of bacterial and fungal beta-lactam biosynthetic genes show they share very high sequence identity. A model that explains the similarity of biosynthetic genes from an evolutionary standpoint assumes horizontal gene-transfer between the two groups of organisms. Indirect evidence suggests the transfer occurred from the bacteria to the fungi.