Cell-free extracts of the unicellular red alga Cyanidium caldarium catalyze the transformation of biliverdin to a product indistinguishable from phycocyanobilin, the free bilin derived from phycocyanin by methanolysis. Crude cell-free extract requires biliverdin as the only substrate, but after removal of low molecular weight components by gel filtration, the reaction shows an additional requirement for a reduced pyridine nucleotide. Boiled extract is enzymically inactive, activity is not sedimented by high-speed centrifugation, and mesobiliverdin cannot serve as a substrate.Incubation of cell extracts with biliverdin yields two products with very similar spectrophotometric properties in acidic methanol, but which are separable by reverse-phase high pressure liquid chromatography. The same two products are formed by methanolysis of protein-bound phycocyanin chromophore, with the late-eluting one predominating. The two products derived from either phycocyanin methanolysis or cell extract incubation with biliverdin are partially interconvertible and they form the same ethylidine-free isomeric derivative, mesobiliverdin. Their absorption spectra correspond to those of the Z-and E-ethylidine isomers of phycocyanobilin. Based on previous work showing that the major methanolysis product has the E-ethylidine configuration, the other product of methanolysis and enzymic biliverdin transformation is therefore the Zethylidine isomer. The time course for formation of the two products during incubation suggests that the early-eluting product is the precursor of the late-eluting one. These results suggest that Z-ethylidine phycocyanobilin is the precursor of the E-ethylidine isomer, and that the latter may be a normal cellular precursor to protein-bound phycocyanin chromophore.