Sterol biosynthesis is viewed primarily as a eukaryotic process, and the frequency of its occurrence in bacteria has long been a subject of controversy. Two enzymes, squalene monooxygenase and oxidosqualene cyclase, are the minimum necessary for initial biosynthesis of sterols from squalene. In this work, 19 protein gene sequences for eukaryotic squalene monooxygenase and 12 protein gene sequences for eukaryotic oxidosqualene cyclase were compared with all available complete and partial prokaryotic genomes. The only unequivocal matches for a sterol biosynthetic pathway were in the proteobacterium, Methylococcus capsulatus, in which sterol biosynthesis is known, and in the planctomycete, Gemmata obscuriglobus. The latter species contains the most abbreviated sterol pathway yet identified in any organism. Analysis shows that the major sterols in Gemmata are lanosterol and its uncommon isomer, parkeol. There are no subsequent modifications of these products. In bacteria, the sterol biosynthesis genes occupy a contiguous coding region and possibly comprise a single operon. Phylogenetic trees constructed for both enzymes show that the sterol pathway in bacteria and eukaryotes has a common ancestry. It is likely that this contiguous reading frame was exchanged between bacteria and early eukaryotes via lateral gene transfer or endosymbiotic events. The primitive sterols produced by Gemmata suggest that this genus could retain the most ancient remnants of the sterol biosynthetic pathway.