Stable isotope analysis is a major tool used in ecosystem studies to establish pathways and rates of C exchange between various ecosystem components. Little is known about isotopic effects of many such components, especially microbes. Here we report on the discovery of an unexpected pattern of C isotopic discrimination by basidiomycete fungi with far-reaching consequences for our understanding of isotopic processing in ecosystems where these microbes mediate material transfers across trophic levels. We measured fractionation effects on three ecologically relevant basidiomycete species under controlled laboratory conditions. Sucrose derived from C(3) and C(4) plants is fractionated differentially by these microbes in a taxon-specific manner. The differentiation between mycorrhizal and saprotrophic fungi observed in the field by others is not explained by intrinsic discrimination patterns. Fractionation occurs during sugar uptake and is sensitive to the nonrandom distribution of stable isotopes in the sucrose molecule. The balance between respiratory physiology and fermentative physiology modulates the degree of fractionation. These discoveries disprove the assumption that fungal C processing does not significantly alter the distribution of stable C isotopes and provide the basis for a reevaluation of ecosystem models based on isotopic evidence that involve C transfer across microbial interfaces. We provide a mechanism to account for the observed differential discrimination effects.