Background: Phanerochaete chrysosporium, the model white rot basidiomycetous fungus, has the extraordinary ability to mineralize (to CO2) lignin and detoxify a variety of chemical pollutants. Its cytochrome P450 monooxygenases have recently been implied in several of these biotransformations. Our initial P450 cloning efforts in P. chrysosporium and its subsequent whole genome sequencing have revealed an extraordinary P450 repertoire ("P450ome") containing at least 150 P450 genes with yet unknown function. In order to understand the functional diversity and the evolutionary mechanisms and significance of these hemeproteins, here we report a genome-wide structural and evolutionary analysis of the P450ome of this fungus. Results: Our analysis showed that P. chrysosporium P450ome could be classified into 12 families and 23 sub-families and is characterized by the presence of multigene families. A genome-level structural analysis revealed 16 organizationally homogeneous and heterogeneous clusters of tandem P450 genes. Analysis of our cloned cDNAs revealed structurally conserved characteristics (intron numbers and locations, and functional domains) among members of the two representative multigene P450 families CYP63 and CYP505 (P450foxy). Considering the unusually complex structural features of the P450 genes in this genome, including microexons (2-10 aa) and frequent small introns (45-55 bp), alternative splicing, as experimentally observed for CYP63, may be a more widespread event in the P450ome of this fungus. Clan-level phylogenetic comparison revealed that P. chrysosporium P450 families fall under 11 fungal clans and the majority of these multigene families appear to have evolved locally in this genome from their respective progenitor genes, as a result of extensive gene duplications and rearrangements. Conclusion: P. chrysosporium P450ome, the largest known todate among fungi, is characterized by tandem gene clusters and multigene families. This enormous P450 gene diversity has evolved by extensive gene duplications and intragenomic recombinations of the progenitor genes presumably to meet the exceptionally high metabolic demand of this biodegradative group of basidiomycetous fungi in ecological niches. In this context, alternative splicing appears to further contribute to the evolution of functional diversity of the P450ome in this fungus. The evolved P450 diversity is consistent with the known vast biotransformation potential of P. chrysosporium. The presented analysis will help design future P450 functional studies to understand the underlying mechanisms of secondary metabolism and oxidative biotransformation pathways in this model white rot fungus.