The mycelial culture of the mushroom Panaeolus papillonaceus showed high tolerance (150 mug/ml) of polyene antibiotics (nystatin, amphotercinin B) present in the growth medium and protoplast of the fungus regenerated normally in the presence of the antibiotics. Both antibiotics inhibited growth of other mushroom strains at concentrations from 10 mug/ml to 20 mug/ml. Because polyene antibiotics interact with free membrane sterol of the sensitive fungi, the sterol present in the mycelia of P. papillonaceus was studied. Extraction of sterol from the mushroom P. papillonaceus required primary treatment of the dried mycelia with alkali, and only ergosterol was identified as present as the extracted sterol. No sterol or sterol conjugate (fatty acid ester) could be extracted directly from the mycelia by petroleum ether, chloroform, or methanol without prior alkali treatment. Homogenization of the mycelia and subsequent treatment of the homogenate with detergent or chaotropic ions did not release any sterol conjugate in the aqueous phase. The unique nature of the sterol component present in the mycelia of P. papillonaceus was indicated.