Paecilomyces sp. TLi, a coal-solubilizing fungus, was shown to degrade organic sulfur-containing coal substructure compounds. Dibenzothiophene was degraded via a sulfur-oxidizing pathway to 2,2'-dihydroxybiphenyl. No further metabolism of that compound was observed. Ethyl phenyl sulfide and diphenyl sulfide were degraded to the corresponding sulfones. A variety of products were formed from dibenzyl sulfide, presumably via free radical intermediates. Diphenyl disulfide and dibenzyl disulfide were cleaved to the corresponding thiols and other single-ring products. It was concluded that degradation of organic sulfur compounds by Paecilomyces involves an oxidative attack localized at the sulfur atom.