A novel cytochalasin, L-696,474, (18-dehydroxy cytochalasin H) that inhibits HIV-1 protease was discovered in fermentations of a bark-inhabiting Ascomycete, Hypoxylon fragiforme. The product was first identified from extracts of an agar medium. Fermentation studies on a number of media indicated that the product can be made on several solid and liquid media. Optimum production was obtained from growth in a complex medium composed of glycerol, glucose, citrate, Ardamine, soybean meal, tomato paste, and inorganic salts. Other Hypoxylon spp., related species of Xylariales, and other fungi known to produce cytochalasins, were also surveyed for their ability to make L-696,474. Only one other Hypoxylon fragiforme isolate was found to make this novel cytochalasin; none of the other cultures surveyed made L-696,474 or any other compounds which inhibit HIV-1 protease.