5-episinuleptolide (1) is an abundant norcembranolide diterpene isolated from several species of the soft coral genus Sinularia. Biocatalytic transformation studies of 1 using Streptomyces lavendulea ATCC 8664 resulted in the isolation and characterization of two new metabolites 2 and 3. Compound 2, 6alpha-hydroxy-5-episinuleptolide was produced via a stereoselective reduction of 1 and was further metabolized into compound 3 which has a 3,8-bicylized cembranoid skeleton. The structures and configurations of the metabolites were determined by spectroscopic and X-ray crystallographic analyses.