Our previous investigation of searching for novel c-fos proto-oncogene inhibitors led to the discovery of two new diketopiperazines related to verticillin family of compounds from the fungus, Gliocladium sp.1) As a result of continued efforts of our natural product program in the anticancer therapy area, a new compound, Sch 56396 (1), was isolated from the fermentation broth of a fungal culture (SCF-0729), Tolypocladium sp. This study describes the fermentation, isolation, structure elucidation and biological activity of 1.