The white rot basidiomycete Phanerochaete chrysosporium completely degrades lignin and a variety of aromatic pollutants during the secondary metabolic phase of growth. Two families of secreted heme enzymes, lignin peroxidase (LiP) and manganese peroxidase (MnP), are major components of the extracellular lignin degradative system of this organism. MnP and LiP both are encoded by families of genes, and the lip genes appear to be clustered. The lip genes contain eight or nine short introns; the mnp genes contain six or seven short introns. The sequences surrounding active-site residues are conserved among LiP, MnP, cytochrome c peroxidase, and plant peroxidases. The eight LiP cysteine residues align with 8 of the 10 cysteines in MnP. LiPs are synthesized as preproenzymes with a 21-amino-acid signal sequence followed by a 6- or 7-amino-acid propeptide. MnPs have a 21- or 24-amino-acid signal sequence but apparently lack a propeptide. Both LiP and MnP are regulated at the mRNA level by nitrogen, and the various isozymes may be differentially regulated by carbon and nitrogen. MnP also is regulated at the level of gene transcription by Mn(II), the substrate for the enzyme, and by heat shock. The promoter regions of mnp genes contain multiple heat shock elements as well as sequences that are identical to the consensus metal regulatory elements found in mammalian metallothionein genes. DNA transformation systems have been developed for P. chrysosporium and are being used for studies on gene regulation and for gene replacement experiments.