A hybrid cefE gene was constructed by juxtaposing promoter sequences from the Penicillium chrysogenum pcbC gene to the open reading frame of the Streptomyces clavuligerus cefE gene. In S. clavuligerus the cefE gene codes for the enzyme penicillin N expandase [also known as deacetoxycephalosporin C synthetase (DAOCS)]. To insert the hybrid cefE gene into P. chrysogenum the vector pPS65 was constructed; pPS65 contains the hybrid cefE gene and the Aspergillus nidulans amdS gene. The amdS gene encodes acetamidase and provides for dominant selection in P. chrysogenum. Protoplasts of P. chrysogenum were transformed with pPS65 and selected for the ability to grow on acetamide medium. Extracts of cells cultivated in penicillin production medium were analyzed for penicillin N expandase activity. Penicillin N expandase activity was detected in approximately one-third of the transformants tested. Transformants WG9-69C-01 and WG9-61L-03 had the highest specific activities of penicillin N expandase: 4.3% and 10.3%, respectively, relative to the amount of penicillin N expandase in S. clavuligerus. Untransformed P. chrysogenum exhibited no penicillin N expandase activity. Analysis of the penicillin V titer revealed that WG9-61L-03 produced titers equal to that of the recipient strain while the amount of penicillin V produced in WG9-69C-01 was reduced by five fold.