Microorganisms are promising as producers of functional lipids such as polyunsaturated fatty acids (PUFAs) and as catalysts transforming them into various molecular species with novel bioactivities. Filamentous fungus Mortierella alpina 1S-4 produced triacylglycerols rich in arachidonic acid. Mutants defective in desaturases and elongases accumulated triacylglycerols rich in unique PUFAs, i.e., dihomo-γ-linolenic acid, Mead acid, and n−1, n−4 and n−7 PUFAs. Some mutants produced lipids extracellularly. Molecular breeding of the strain resulted in the production of triacylglycerols rich in n-3 (ω3) PUFA including EPA under ordinary temperature. DHA and ω3-DPA rich triacylglycerol was produced by newly isolated Aurantiochytrium sp. T7. Enzymatic oxygenation generates bioactive PUFA derivatives such as prostaglandins. One of the prostaglandins, PGF2α, is generated from arachidonic acid via the cyclooxygenase (COX) reaction. COX gene from Gracilaria vermiculophylla was introduced into M. alpina. The transformant was capable to produce PGF2α extracellularly. Enzymatic epoxidation of EPA by bacterial P450 monooxygenase was applied to produce anti-inflammatory derivatives such as 17,18-epoxy-eicosatetraenoic acid. Novel PUFA metabolism was found in gut bacteria. Through the metabolism, hydroxy, oxo, enone, and conjugated fatty acids were produced by the enzyme system consisting of hydratase, dehydrogenase, isomerase, and enone reductase. Enzymatic method to prepare these unique metabolites was established. The existence of these metabolites in host tissues depending on gut bacteria was revealed. The metabolites showed unique physiological activities. These results suggested that the dietary fatty acid metabolites by gut microbiota can influence the health of the host, and might have potentials as novel functional foods and pharmaceuticals.