Transformation of salannin, an insecticidal C-seco limonoid was investigated using a fungal system, Cunninghamella echinulata. Salannin was efficiently converted into two metabolites, where the C-17 furan moiety was transformed into gamma-hydroxybutenolide (salanninolide) and N-(2-hydroxyethyl)-alpha,beta-unsaturated-gamma-lactam (salanninactam) analogues. Present studies have indicated salanninolide to be a metabolite in the C-seco limonoid biosynthetic pathway.