Taxol is a diterpenoid anti-cancer drug isolated from the bark of ' Taxus' plants. Taxol was previously found to be biosynthesized in parallel by endophytic fungi inhabiting 'Taxus' and other plant species. However, the amount of Taxol produced by these fungal endophytes is very low, in the range of submicrograms per litre. Biochemical, molecular and microscopy strategies were used to better characterize the biology and habitat of a novel Taxol-producing endophytic fungus inhabiting 'Taxus ' x 'media' Rehd. plants, named as 'Paraconiothyrium ' SSM001. To determine which precursor pathways contribute to fungal Taxol biosynthesis, the effects of three 'plant' Taxol pathway inhibitors, fosmidomycin (3-deoxy xylulose-5-phosphate reductoisomerase inhibitor), compactin (3- hydroxy3-methyl glutaryl CoA reductase inhibitor) and cinnamic acid (phenylalanine ammonia-lyase inhibitor) on 'Paraconiothyrium' SSM001 fungal liquid culture were tested. This approach suggested that fungal Taxol is derived from a non-mevalonate-like pathway, and also from mevalonate and shikimate pathways. Furthermore, plant Taxol yields correlated (Pearson r2= 0.6 to 0.8) with the quantity or expression of their resident Taxol-producing endophytic fungi, demonstrating their importance to plant Taxol yield. Using a Taxol monoclonal antibody combined with electron microscopy, Taxol was localized within intracellular hydrophobic bodies both in ' Taxus' plants and SSM001 fungi. 'In planta,' light microscopy revealed that both Taxol-containing bodies and Taxol-producing fungi hyperaccumulated at potential pathogen entry points including bark cracks. By using knowledge of the biology and native habitat of SSM001 fungi along with plant Taxol localization, Taxol was found to be effective against wood decaying fungi using 'in vitro' plate assays. Therefore, Taxol acts as a fungicide to protect 'Taxus' plants against invasion by wood decaying fungi, thereby assisting in the survival of long lived trees. Wood decaying fungi stimulated fungal Taxol biosynthesis and the release of Taxol-containing hydrophobic bodies by exocytosis as observed by biochemical analysis and light microscopy, respectively.