Degradation of diclofenac sodium, a nonsteroidal anti-inflammatory drug widely found in the aquatic environment, was assessed using the white-rot fungus Trametes versicolor. Almost complete diclofenac removal (> or = 94%) occurred the first hour with T. versicolor pellets when the drug was added at relatively high (10 mg L(-1)) and environmentally relevant low (45 microg L(-1)) concentrations in a defined liquid medium. In vivo and in vitro experiments using the cytochrome P450 inhibitor 1-aminobenzotriazole and purified laccase, respectively, suggested at least two different mechanisms employed by T. versicolor to initiate diclofenac degradation. Two hydroxylated metabolites, 4'-hydroxydiclofenac and 5-hydroxydiclofenac, were structurally elucidated by nuclear magnetic resonance as degradation intermediates in fungal cultures spiked with diclofenac. Both parent compound and intermediates disappeared after 24 h leading to a decrease in ecotoxicity calculated by the Microtox test. Laccase-catalyzed transformation of diclofenac led to the formation of 4-(2,6-dichlorophenylamino)-1,3-benzenedimethanol, which was not detected in in vivo experiments probably due to the low laccase activity levels observed through the first hours of incubation.