Lignin-degrading and modifying enzymes are produced under specific culture conditions by white-rot fungi. Most of these enzymes are excreted into the extracellular environment and can be purified from culture supernatant. At RepliGen we have characterized many of the extracellular proteins from the white-rot fungus Phanerochaete chrysosporium. Industrial application potentials for these enzymes are predicted to be in the chemical industry, pulp and paper industry, and perhaps in pollution control. The isolation and characterization of enzymes that catalyse specific reactions on kraft lignins and lignosulphonates will be discussed. These reactions include (1) a polymerizing-depolymerizing activity that changes the size of the lignin substrate and (2) a decolorizing reaction that reduces chromophoric groups in lignin. Kraft lignin and lignosulphonates have many diverse commercial applications because of their dual properties of hydrophobicity and hydrophilicity. They could have broad use if modified, as in the above reactions, in an efficient manner. The development of enzyme systems may provide just such efficient reactions.