An actinomycete strain 51 isolated from a soil sample collected in the Gobi Desert (Mongolia) was shown to produce a novel antibiotic of the group of aureolic acid. By the morphological, chemotaxonomic, cultural and physiological properties strain 51 was identified as belonging to Streptomyces phaeofaciens. The strain inhibited the growth of gram-positive bacteria and was inactive against gram-negative microbes and fungi. During natural variation strain 51 segregated into variants of 3 types. The variants differing from those of the main type possessed lower antibiotic activity. It was not observed earlier that S. phaeofaciens strains produced antibiotics of the group of aureolic acid.