The rare ginsenoside Rg3 is attracting more attention because of its good physiological activity and urgent need. There are many pathways to obtain ginsenoside Rg3, including chemical and biological methods. Among these, the conversion of the protopanaxadiol-type ginsenosides by microbial hydrolysis is a trend due to its high efficiency and mild conditions. For effectively extracting from the other panaxadiol saponins, the conversion process for ginsenoside Rg3 was investigated using β-glycosidase-producing endophytic fungus in Panax ginseng in this study. The metabolic pathways are as follows: ginsenoside Rb1 → Gyp-XVII and ginsenoside Rb1 → ginsenoside Rd → ginsenoside Rg3. Phylogenetic analysis of 16S rDNA gene sequence, showed that GE 32 strain belonged to Flavobacterium species. These results suggest that the process of rare ginsenoside Rg3 production by endophytic bacteria GE 32 is efficient for the industrial production and application. SIGNIFICANCE AND IMPACT OF THE STUDY: This is the first report on cultivable β-glycosidase-producing endophytic bacteria from Panax ginseng. Flavobacterium sp. GE32 could convert major ginsenoside Rb1 into Gyp-XVII and minor ginsenoside Rg3. Strain GE 32 has potential to be applied on the preparation for minor ginsenoside Rg3 in pharmaceutical industry.