The homothallic ascomycete Aspergillus nidulans serves as model organism for filamentous fungi because of its ability to propagate with both asexual and sexual life cycles, and fatty acid-derived substances regulate the balance between both cycles. These so-called psi (precocious sexual inducer) factors are produced by psi factor-producing oxygenases (Ppo enzymes). Bioinformatic analysis predicted the presence of two different heme domains in Ppo proteins: in the N-terminal region, a fatty acid heme dioxygenase/peroxidase domain is predicted, whereas in the C-terminal region, a P450 heme thiolate domain is predicted. To analyze the reaction catalyzed by Ppo enzymes, PpoA was expressed in Escherichia coli as an active enzyme. The protein was purified by 62-fold and identified as a homotetrameric ferric heme protein that metabolizes mono-as well as polyunsaturated C 16 and C 18 fatty acids at pH ϳ7.25. The presence of thiolate-ligated heme was confirmed on the basis of sequence alignments and the appearance of a characteristic 450 nm CO-binding spectrum. Studies on its reaction mechanism revealed that PpoA uses different heme domains to catalyze two separate reactions. Within the heme peroxidase domain, linoleic acid is oxidized to (8R)-hydroperoxyoctadecadienoic acid by abstracting a H-atom from C-8 of the fatty acid, yielding a carbon-centered radical that reacts with molecular dioxygen. In the second reaction step, 8-hydroperoxyoctadecadienoic acid is isomerized within the P450 heme thiolate domain to 5,8-dihydroxyoctadecadienoic acid. We identify PpoA as a bifunctional P450 fusion protein that uses a previously unknown reaction mechanism for forming psi factors.The fungus Aspergillus nidulans (teleomorph Emericella nidulans) is a homothallic ascomycete that has a defined sexual and asexual developmental cycle. Therefore, it serves as a model system for the understanding of fungal development (1). Oxidized unsaturated fatty acids, so-called oxylipins, derived from endogenous fatty acids were found to influence the development of the asexual conidiophores and sexual cleistothecia (2-6). Moreover, they seem to regulate the secondary metabolism of the fungus (7). These substances were collectively named psi factors and are primarily a mixture of hydroxylated oleic (18:1 ⌬9Z