The nematophagous fungus Pochonia chlamydosporia is a potential biocontrol agent against root knot and cyst nematodes. Genetic transformation of the fungus to introduce visual marker genes, novel traits, or changes in expression levels of endogenous genes, would greatly enhance understanding of its behaviour on nematode-infested roots and of its interactions with other soil and rhizosphere microorganisms. A transformation system for the introduction of novel genes into P. chlamydosporia has been developed. Methods to generate protoplasts, introduce DNA and regenerate transformed viable fungal mycelium have been optimised, using plasmids carrying the green fluorescent protein marker gene gfp and the hygromycin resistance gene hph. Cultures of P. chlamydosporia were resistant to high levels of a range of fungal inhibitors, including hygromycin, that are commonly used with dominant selectable marker genes in the transformation of other fungi. However, regenerating protoplasts transformed with hph could be selected by their ability to grow through an agar overlay containing 1 mg ml−1 hygromycin. Green fluorescence was observed in protoplasts and regenerating mycelium after transformation with gfp, but the GFP phenotype was lost on subculture. Maintenance of introduced genes was not stable, and during subculture, PCR assays indicated that the transformants lost both hph and gfp. When these genes were introduced on the same plasmid, segregation of hph and gfp was observed prior to their loss. It was unclear whether the introduced plasmids were able to replicate autonomously in P. chlamydosporia, or if they integrated transiently into the fungal genome. Possible reasons for the instability of the transformants are discussed.