Microorganisms are promising as producers of various nutritionally functional lipids such as polyunsaturated fatty acids (PUFAs). They further transform PUFAs into unique molecular species beyond common PUFAs. This chapter describes PUFA production through chemical mutant and molecular breeding of an oleaginous filamentous fungus Mortierella alpina 1S-4 and PUFA transformation by anaerobic bacteria existing in the gastrointestinal tract such as lactic acid bacteria. M. alpina 1S-4 and its mutants and transformants have led to the production of oils containing not only common n-6 and n-3 PUFAs but also rare PUFAs such as n-9 n-7, n-4, n-1, and nonmethylene interrupted PUFAs. Unique PUFA-transforming activities were found in anaerobic bacteria. They isomerized PUFAs, such as linoleic acid, arachidonic acid, and EPA to corresponding conjugated fatty acids and further transformed to partially saturated fatty acids with hydroxy fatty acids as intermediates through the so-called biohydrogenation pathway. The functions of these unique PUFAs have attracted much attention for improving our health and for developing new materials for functional foods and chemicals.