The filamentous fungus Paecilomyces variotii NBRC 109023 (teleomorph: Byssochlamys spectabilis NBRC 109023) degrades formaldehyde at concentrations as high as 2.4 % (w/v). In many prokaryotes and in all known eukaryotes, formaldehyde degradation is catalyzed by S-hydroxymethylglutathione (S-HMGSH) dehydrogenase. We report here the isolation and characterization of the gene encoding S-HMGSH dehydrogenase activity in P. variotii. The 1.6-kb fldA gene contained 5 introns and 6 exons, and the corresponding cDNA was 1143 bp, encoding a 40-kDa protein composed of 380 amino acids. FldA was predicted to have 74.3, 73.7, 68.5, and 67.4% amino acid identity to the S-HMGSH dehydrogenases of Hansenula polymorpha, Candida boidinii, Saccharomyces cerevisiae, and Kluyveromyces lactis, respectively. The predicted protein also showed high amino acid similarity (84 similar to 86 %) to the products of putative fldA genes from other filamentous fungi, including Aspergillus sp. and Penicillium sp. Notably, the P. variotii fldA gene was able to functionally complement a Saccharomyces cerevisiae strain (BY4741 Delta sfa1) lacking the gene for S-HMGSH dehydrogenase. The heterologous expression construct rendered BY4741 Delta sfa1 tolerant to exogenous formaldehyde. Although BY4741 (parental wild-type strain) was unable to degrade even low concentrations of formaldehyde, BY4741 Delta sfa1 harboring Paecilomyces fldA was able to degrade 4 mM formaldehyde within 30 h. The findings from this study confirm the essential role of S-HMGSH dehydrogenase in detoxifying formaldehyde.