The fungusPolyporus versicolorwas shown to produce an extracellular polyphenol oxidase system during growth in submerged culture. The enzyme was stable and active in acid solution, and ozidized lignin, vanillin, ferulic acid, and other phenolic substances. Vanillin and ferulic acid were converted to new compounds as a result of enzyme action, whereas lignin absorbed oxygen and appeared to become more water soluble.