A new antifungal compound, Sch 37137, was isolated from the cultured broth of a Micromonospora sp., SCC 1792. Sch 37137 is structurally related to A 19009, a dipeptide previously discovered from a Streptomyces sp. The compound was weakly active against species of Candida and dermatophytes (mean MICs greater than or equal to 128 micrograms/ml) in Sabouraud dextrose, yeast-nitrogen and modified Eagles minimum essential media; however activity against Candida sp. (mean MICs greater than or equal to 12 micrograms/ml) and dermatophytes (mean MICs greater than or equal to 0.8 microgram/ml) significantly improved in MA medium.