A new pyrrolyl 4-quinolinone alkaloid with an unprecedented ring system, named penicinoline (1) was isolated from a mangrove endophytic fungus. The structure of 1 was elucidated by spectroscopic methods and comparison with its derivative, penicinotam (1a), an unexpected lactam that was obtained from 1 by intramolecular dehydration. The structure of 1a was unambiguously confirmed by single-crystal X-ray analysis. Penicinoline (1) showed potent in vitro cytotoxicity toward 95-D and HepG2 cell lines with IC(50) values of 0.57 and 6.5 microg/mL, respectively.