Omphalotin (l), a new cyclic peptide possessing strong and selective nematicidal activity against the plant pathogenic Meloidogyne incognita, was isolated from cultures of the basidiomycete Omphalotus olearius together with the antibiotic sesquiterpene illudin M (2) and the inactive 3-(3-indolyl)-N-methylpropanamide (3). Omphalotin (1) is only weakly active against the saprophytic nematode Caenorhabditis elegans, it is weakly cytotoxic at 100 pg/ml but shows no phytotoxic, antibacterial or antifungal activities. The fermentation of O. olearius and the production of the metabolites as well as the evaluation of their biological activities are reported.