The new antifungal agent nitrosofungin was isolated in high yields from a mixed culture of two organisms consisting of a bacterium of the genus Alcaligenes (UC 9152) and Streptomyces plicatus UC 8272. The bacterium produces the agent, the streptomycete enhances the production by providing a precursor or an inducer. Nitrosofungin in high concentrations inhibits a broad variety of pathogenic fungi in vitro. The agent is relatively non-toxic in small laboratory animals and high blood levels are obtained after either oral or systemic administration. Nitrosofungin is only the second N-nitrosohydroxylamine isolated from microbial sources to date. It has been identified as 2-N-nitrosohydroxylamino-1-propanol, an acidic and highly water-soluble compound.