The grass parasites Claviceps purpurea and Claviceps fusiformis produce ergot alkaloids (EA) in planta and in submerged culture. Whereas EA synthesis (EAS) in C. purpurea proceeds via clavine intermediates to lysergic acid and the complex ergopeptines, C. fusiformis produces only agroclavine and elymoclavine. In C. purpurea the EAS gene (EAS) cluster includes dmaW (encoding the first pathway step), cloA (elymoclavine oxidation to lysergic acid), and the lpsA/lpsB genes (ergopeptine formation). We analyzed the corresponding C. fusiformis EAS cluster to investigate the evolutionary basis for chemotypic differences between the Claviceps species. Other than three peptide synthetase genes (lpsC and the tandem paralogues lpsA1 and lpsA2), homologues of all C. purpurea EAS genes were identified in C. fusiformis, including homologues of lpsB and cloA, which in C. purpurea encode enzymes for steps after clavine synthesis. Rearrangement of the cluster was evident around lpsB, which is truncated in C. fusiformis. This and several frameshift mutations render CflpsB a pseudogene (CflpsB(Psi)). No obvious inactivating mutation was identified in CfcloA. All C. fusiformis EAS genes, including CflpsB(Psi) and CfcloA, were expressed in culture. Cross-complementation analyses demonstrated that CfcloA and CflpsB(Psi) were expressed in C. purpurea but did not encode functional enzymes. In contrast, CpcloA catalyzed lysergic acid biosynthesis in C. fusiformis, indicating that C. fusiformis terminates its EAS pathway at elymoclavine because the cloA gene product is inactive. We propose that the C. fusiformis EAS cluster evolved from a more complete cluster by loss of some lps genes and by rearrangements and mutations inactivating lpsB and cloA.