Certain antibiotics 1-4 possess cyclic structures containing a-hydroxy- and a-amino acids linked by alternate ester and amide bonds. Alkaline degradation of these and similar compounds gives hydroxyacylamino acids. We isolated an hydroxyacyldipeptide, sporidesmolic acid B, from the fungus Sporidesmium bakeri by saponification of a fraction believed to be neither toxic nor antibiotic. Sporidesmolic acid B crystallized from aqueous acetic acid as needles with a melting point of 165-166 ° (corr.), [α]D²⁰ -108° in acetic acid (c, 4), was readily soluble in organic solvents but sparingly soluble in water, and showed infrared peaks characteristic of amide, hydroxyl and carboxyl. Elemental analysis matched the formula C17H32O5N2 (found: C 59.30, H 9.35, N 8.08; calc.: C 59.24, H 9.37, N 8.13). Acid hydrolysis furnished L-a-hydroxyisovaleric acid, L-valine and N-methyl-L-leucine, leading to the structure L-a-hydroxyisovaleryl-L-valyl-N-methyl-L-leucine. As a peptolide, it differs from antibiotic peptolides in possessing an L-a-hydroxyisovaleryl residue and a true dipeptide sequence, and may function as a water-insoluble coat on fungal spores.