Here, the genome sequence of the ectomycorrhizal basidiomycete Laccaria bicolor was explored with the aim of constructing a genome-wide inventory of genes involved in fatty acid metabolism. Sixty-three genes of the major pathways were annotated and validated by the detection of the corresponding transcripts. Seventy-one per cent belonged to multigene families of up to five members. In the mycelium of L. bicolor, 19 different fatty acids were detected, including at low concentrations palmitvaccenic acid (16:1(11Z)), which is known to be a marker for arbuscular mycorrhizal fungi. The pathways of fatty acid biosynthesis and degradation in L. bicolor were reconstructed using lipid composition, gene annotation and transcriptional analysis. Annotation results indicated that saturated fatty acids were degraded in mitochondria, whereas degradation of modified fatty acids was confined to peroxisomes. Fatty acid synthase (FAS) was the second largest protein annotated in L. bicolor. Phylogenetic analysis indicated that L. bicolor, Ustilago maydis and Coprinopsis cinerea have a vertebrate-like type I FAS encoded as a single protein, whereas in other basidiomycetes, including the human pathogenic basidiomycete Cryptococcus neoformans, and in most ascomycetes FAS is composed of the two structurally distinct subunits α and β.