Paecilomyces is a saprophytic soil fungus that is an uncommon human pathogen. We report a diabetic patient who developed an upper lobe pulmonary infection due to Paecilomyces varioti. This pneumonia responded poorly to oral imidazole therapy with ketoconazole. Eventual treatment of the chronic infiltrating process required administration of intravenous amphotericin B. This experience emphasizes the potential pathologic nature of this fungus when immunity is compromised by poorly controlled diabetes.