The basidiomycetous yeast, Xanthophyllomyces dendrorhous, is one of the very few organisms which can be used for biological production of the carotenoid astaxanthin. crtE cDNA has been cloned from this fungus for engineering of the terpenoid pathway. The function of its gene product as a geranylgeranyl pyrophosphate synthase was established. X. dendrorhous was transformed with the crtE cDNA to divert metabolite flow from the sterol pathway towards carotenoid biosynthesis. Transformants were obtained with increased levels of geranylgeranyl pyrophosphate synthase leading to higher carotenoid levels including astaxanthin. Physiological conditions for maximum carotenoid synthesis for wild type and the CrtE transformant were dim light and extra air supply of the shaking culture. These conditions and the transformation with crtE had additive effects and resulted in an 8-fold higher astaxanthin formation as compared to the initial wild type culture without illumination and extra air supply yielding 451 mu g/g dry wt within 4 days of growth.