We report the first mycorrhizal fungal aldehyde dehydrogenase gene, ald1, which was isolated from the basidiomycete Tricholoma vaccinum. The gene, encoding a protein Ald1 of 502 amino acids, is up-regulated in ectomycorrhiza. Phylogenetic analyses using 53 specific fungal aldehyde dehydrogenases from all major phyla in the kingdom of fungi including Ald1 and two partial sequences of T. vaccinum were performed to get an insight in the evolution of the aldehyde dehydrogenase family. By using competitive and real-time RT-PCR, ald1 is up-regulated in response to alcohol and aldehyde-related stress. Furthermore, heterologous expression of ald1 in Escherichia coli and subsequent in vitro enzyme activity assay demonstrated the oxidation of propionaldehyde and butyraldehyde with different kinetics using either NAD(+) or NADP(+) as cofactors. In addition, overexpression of ald1 in T. vaccinum after Agrobacterium tumefaciens-mediated transformation increased ethanol stress tolerance. These results demonstrate the ability of Ald1 to circumvent ethanol stress, a critical function in mycorrhizal habitats.