The metatrophic fungus Paecilomyces sp. (Tree1-7) was isolated from an estuarine mangrove from the Taiwan Strait. The methanol extract of the fungal mycelium exhibited cytotoxicity against hepG2. Paeciloxanthone (1), a new xanthone, and the known compounds emodin (2) and chrysophanol (3), were isolated from the extract. Their structures were elucidated by spectroscopic experiments. Paeciloxanthone (1) exhibited in vitro cytotoxicity against hepG2 (IC(50)=1.08 microg/mL), acetylcholineesterase (AChE) inhibitory (IC(50)=2.25 microg/mL) and antimicrobial activities.