The phytopathogenic basidiomycetous fungus Ustilago maydis secretes large amounts of the glycolipid biosurfactant ustilagic acid (UA). UA consists of 15,16-dihydroxypalmitic or 2,15,16-trihydroxypalmitic acid, which is O-glycosidically linked to cellobiose at its terminal hydroxyl group. In addition, the cellobiose moiety is acetylated and acylated with a short-chain hydroxy fatty acid. We have identified a 58 kb spanning gene cluster that contains 12 open reading frames coding for most, if not all, enzymes needed for UA biosynthesis. Using a combination of genetic and mass spectrometric analysis we were able to assign functional roles to three of the proteins encoded by the gene cluster. This allowed us to propose a biosynthesis route for UA. The Ahd1 protein belongs to the family of non-haem diiron reductases and is required for alpha-hydroxylation of palmitic acid. Two P450 monooxygenases, Cyp1 and Cyp2, catalyse terminal and subterminal hydroxylation of palmitic acid. We could demonstrate that infection of tomato leaves by the plant pathogenic fungus Botrytis cinerea is prevented by co-inoculation with wild-type U. maydis sporidia. U. maydis mutants defective in UA biosynthesis were unable to inhibit B. cinerea infection indicating that UA secretion is critical for antagonistic activity.