Technical Abstract: Among the three groups of natural products (starch, protein and fat), fat and oil are the most under-investigated. The US has a large amount of surplus soybean oil annually, and using vegetable oils or their component fatty acids as starting material provides a new opportunity for bioindustry. Vegetable oils are relatively inexpensive and can be used to manufacture value-added products such as oxygenated oils. Oxygenated fatty acids are common in nature and are important industrial materials. They exist both in mammals and plants. Microorganisms oxidize fatty acids either at the terminal carbon or inside of the acyl chain to produce hydroxyl or keto fatty acids. In our continuing effort to produce value-added products from vegetable oils, we discovered more than one dozen novel oxygenated fatty acids through biotransformation. Microbial hydratase is a carbon 10 positional specific enzyme. These new oxygenated fatty acids possess physiological activities and can be used as biomedicals, in addition to their known applications as specialty chemicals. The position of hydroxyl groups on the fatty acyl carbon chain plays an important role in the activity against certain specific plant pathogenic fungi. Bacillus megaterium ALA2 converted polyunsaturated fatty acids (PUFA) in different ways. It converted omega-6 PUFAs to a mixture of diepoxy bicyclic, tetrahydrofuranyl rings, and/or trihydroxy groups in their molecules while the products from omega-3 PUFAs produced only hydroxyl tetrahydrofuranyl ring products. Fat and oil represent an area with tremendous opportunity for new biotechnology to explore.