SUMMARY: β-Glucotransferase was demonstrated in mycelial extracts and culture filtrates of Verticillium albo-atrum grown on 2% cellobiose as the sole source of carbon. Analysis of the mycelium indicated relatively large amounts of cellobiose and gentiobiose, as well as small amounts of a series of three oligosaccharides (DP3,4,5) and glucose; the same compounds were detected in the culture filtrate but at much lower concentrations (except for cellobiose) and glucose was barely detectable. Cellobiose phosphorylase was also present in mycelial extracts, and it is suggested that the production of glucose-1-phos-phate from the phosphorylytic cleavage of cellobiose and its rapid utilization as a respiratory substrate explains why the fungus grows so much faster on cellobiose than on glucose. The level of these two enzyme systems is considered to be an important factor in controlling the rate of growth. The significance of the formation of oligosaccharides by the transferase system is discussed in relation to cellulose degradation.