Fumonisins are polyketide-derived mycotoxins produced by several agriculturally important Fusarium species. The B series fumonisins, FB(1), FB(2), FB(3), and FB(4), are fumonisins produced by wild-type Fusarium verticillioides strains, differing in the number and location of hydroxyl groups attached to the carbon backbone. We characterized the protein encoded by FUM3, a gene in the fumonisin biosynthetic gene cluster. The 33-kDa FUM3 protein (Fum3p) was heterologously expressed and purified from Saccharomyces cerevisiae. Yeast cells expressing the Fum3p converted FB(3) to FB(1), indicating that Fum3p catalyzes the C-5 hydroxylation of fumonisins. This result was verified by assaying the activity of Fum3p purified from yeast cells. The C-5 hydroxylase activity of purified Fum3p required 2-ketoglutarate, Fe(2+), ascorbic acid, and catalase, all of which are required for 2-ketoglutarate-dependent dioxygenases. The protein also contains two His motifs that are highly conserved in this family of dioxygenases. Thus, Fum3p is a 2-ketoglutarate-dependent dioxygenase required for the addition of the C-5 hydroxyl group of fumonisins.