Penicillin biosynthesis by Penicillium chrysogenum is a compartmentalized process. The first catalytic step is mediated by delta-(L-alpha-aminoadipyl)-L-cysteinyl-D-valine synthetase (ACV synthetase), a high molecular mass enzyme that condenses the amino acids L-alpha-aminoadipate, L-cysteine, and L-valine into the tripeptide ACV. ACV synthetase has previously been localized to the vacuole where it is thought to utilize amino acids from the vacuolar pools. We localized ACV synthetase by subcellular fractionation and immuno-electron microscopy under conditions that prevented proteolysis and found it to co-localize with isopenicillin N synthetase in the cytosol, while acyltransferase localizes in microbodies. These data imply that the key enzymatic steps in penicillin biosynthesis are confined to only two compartments, i.e., the cytosol and microbody.