The accumulation of the apocarotenoid neurosporaxanthin and its carotene precursors explains the orange pigmentation of the Neurospora surface cultures. Neurosporaxanthin biosynthesis requires the activity of the albino gene products (AL-1, AL-2 and AL-3), which yield the precursor torulene. Recently, we identified the carotenoid oxygenase CAO-2, which cleaves torulene to produce the aldehyde beta-apo-4'-carotenal. This revealed a last missing step in Neurospora carotenogenesis, namely the oxidation of the CAO-2 product to the corresponding acid neurosporaxanthin. The mutant ylo-1, which exhibits a yellow colour, lacks neurosporaxanthin and accumulates several carotenes, but its biochemical basis is unknown. Based on available genetic data, we identified ylo-1 in the Neurospora genome, which encodes an enzyme representing a novel subfamily of aldehyde dehydrogenases, and demonstrated that it is responsible for the yellow phenotype, by sequencing and complementation of mutant alleles. In contrast to the precedent structural genes in the carotenoid pathway, light does not induce the synthesis of ylo-1 mRNA. In vitro incubation of purified YLO-1 protein with beta-apo-4'-carotenal produced neurosporaxanthin through the oxidation of the terminal aldehyde into a carboxyl group. We conclude that YLO-1 completes the set of enzymes needed for the synthesis of this major Neurospora pigment.