A steroid monooxygenase of Cylindrocarpon radicicola was found to catalyze oxygenative lactonization of 17-ketosteroid, androstenedione, to yield D-homo-17 alpha-oxasteroid, testololactone, i.e., the androstenedione monooxygenase reaction, in addition to catalyzing the progesterone monooxygenase reaction. The reaction product was identified by TLC, GLC, and mass spectrometry. The oxygenation proceeded with unitary stoichiometry for 17-ketosteroid, NADPH, and molecular oxygen, indicating that it is a typical monooxygenase reaction of the external electron donor type. The enzyme catalyzed successively the side chain cleavage reaction of 17 alpha-hydroxy-20-ketosteroid to produce its 17-keto derivative and the lactonization of the product. The effects of pH and of the concentration of substrate steroids on the androstenedione monooxygenase reaction were different from those on the progesterone monooxygenase reaction. Progesterone is a strong and competitive inhibitor of the lactonization of 17-ketosteroids. The steroid monooxygenase is concluded to have the activities of both oxygenative esterification of 20-ketosteroids and oxygenative lactonization of 17-ketosteroids.