A novel nematicidal antibiotic, paeciloxazine has been isolated from the culture broth of a fungus Paecilomyces BAUA3058 strain. This compound, whose structure was determined by spectroscopic methods, has a pyrrolobenzoxazine skeleton. Paeciloxazine has moderate cidal activity against Rhabditis pseudoelongata and is weakly active against some insects.