3- Hydroxypropionic acid was isolated by bioactivity-guided fractionation of extracts obtained from submerged cultures of several endophytic fungi isolated from above-ground plant organs. This compound showed selective nematicidal activity against the plant-parasitic nematode Meloidogyne incognita with LD50 values of 12.5-15 microg/ml. Activity against the saprophytic Caenorhabditis elegans was fivefold lower. No antimicrobial, cytotoxic or phytotoxic effects were observed. Propionic acid and D- and L-lactic acids were not active against either nematode species. Based on morphological features and ITS, 18S and 28S rDNA analyses, the producing strains were identified as Phomopsis phaseoli isolated from the leaf of a tropical tree, and four strains of Melanconium betulinum isolated from twigs of Betula pendula and B. pubescens in Germany. This is the first report of 3-hydroxypropionic acid in fungi, and of the nematicidal activity of this metabolite.