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  1. Morels (Morchella spp.) are popular edible fungi with significant economic and scientific value. However, white mold disease, caused by Paecilomyces penicillatus, can reduce morel yield by up to 80% in the main cultivation area in China. Paecilomyces is a polyphyletic genus and the exact phylogenetic placement of P. penicillatus is currently still unclear. Here, we obtained the first high-quality genome sequence of P. penicillatus generated through the single-molecule real-time (SMRT) sequencing platform. The assembled draft genome of P. penicillatus was 40.2 Mb, had an N50 value of 2.6 Mb and encoded 9454 genes. Phylogenetic analysis of single-copy orthologous genes revealed that P. penicillatus is in Hypocreales and closely related to Hypocreaceae, which includes several genera exhibiting a mycoparasitic lifestyle. CAZymes analysis demonstrated that P. penicillatus encodes a large number of fungal cell wall degradation enzymes. We identified many gene clusters involved in the production of secondary metabolites known to exhibit antifungal, antibacterial, or insecticidal activities. We further demonstrated through dual culture assays that P. penicillatus secretes certain soluble compounds that are inhibitory to the mycelial growth of Morchella sextelata. This study provides insights into the correct phylogenetic placement of P. penicillatus and the molecular mechanisms that underlie P. penicillatus pathogenesis.