Much of natural product chemistry concerns a group of compounds known as secondary metabolites. These low-molecular-weight metabolites often have potent physiological activities. Digitalis, morphine and quinine are plant secondary metabolites, whereas penicillin, cephalosporin, ergotrate and the statins are equally well known fungal secondary metabolites. Although chemically diverse, all secondary metabolites are produced by a few common biosynthetic pathways, often in conjunction with morphological development. Recent advances in molecular biology, bioinformatics and comparative genomics have revealed that the genes encoding specific fungal secondary metabolites are clustered and often located near telomeres. In this review, we address some important questions, including which evolutionary pressures led to gene clustering, why closely related species produce different profiles of secondary metabolites, and whether fungal genomics will accelerate the discovery of new pharmacologically active natural products.