The cefD and cefE genes of Nocardia lactamdurans, which encode isopenicillin N epimerase and deacetoxycephalosporin C synthase respectively, have been located 0.63 kb upstream from the lysine-6-amino-transferase (lat) gene. cefD contains an open reading frame (ORF) of 1197 nucleotides (nt) encoding a protein of 398 amino acids with a M(r) of 43,622. The deduced amino acid sequence exhibits 62.2% identity to the cefD gene product of Streptomyces clavuligerus. The sequence SXHKXL in isopenicillin N epimerase resembles the consensus sequence for pyridoxal phosphate binding found in several amino acid decarboxylases from Enterobacteria. cefE contains an ORF of 945 nt encoding a protein of 314 amino acids with a M(r) of 34,532, which is similar to the deacetoxycephalosporin C synthase of S. clavuligerus. Expression of both genes, cefD and cefE, in S. lividans transformants, results in deacetoxycephalosporin C synthase and isopenicillin N epimerase activities that are 10-12 times higher than those in N. lactamdurans. The cefD and cefE genes of N. lactamdurans are closely linked but the overall organization of the cephamycin gene cluster differs in N. lactamdurans and S. clavuligerus.