Intensive study of gene diversity of bioactive compounds in a wood-rot fungus, Xylaria sp. BCC1067, has made it possible to identify polyketides and nonribosomal peptides (NRPs) unaccounted for by conventional chemical screening methods. Here we report the complete nonribosomal peptide synthetase (NRPS) gene responsible for the biosynthesis of an NRP, bassianolide, using a genetic approach. Isolation of the bassianolide biosynthetic gene, nrpsxy, was achieved using degenerate primers specific to the adenylation domain of NRPS. The complete ORF of nrpsxy is 10.6 kb in length. Based on comparisons with other known NRPSs, the domain arrangement of NRPSXY is most likely to be C-A-T-C-A-M-T-T-C-R. The other ORF found upstream of nrpsxy, designated efxy, is 1.8 kb in length and shows high similarity to members of the major facilitator superfamily of transporters. Functional analysis of the nrpsxy gene was conducted by gene disruption, and the missing metabolite in the mutant was identified. Chemical analysis revealed the structure of the metabolite to be a cyclooctadepsipeptide, bassianolide, which has been found in other fungi. A bioassay of bassianolide revealed a wide range of biological activities other than insecticidal uses, which have been previously reported, thus making bassianolide an interesting candidate for future structural modification. This study is the first evidence for a gene involved in the biosynthesis of bassianolide.