The organic soil horizons of heathland and temperate forest ecosystems are characteristically rich in phenolics, which present barriers to organic N availability to the microflora. The abilities of ectomycorrhizal (ECM), ericoid mycorrhizal and wood decomposing saprotrophic fungi to degrade model compounds representing the insoluble phenolic lignin, and soluble phenolics, which provide physical and chemical barriers respectively to organic N availability, were compared. No clear relationship was found between ability to degrade lignin and soluble phenolics. The presumptive assays indicated that most mycorrhizal fungi have only low abilities to degrade these compounds relative to the wood decomposing fungi. In general, ericoid mycorrhizal fungi were capable of greater phenolic degradation than most ECM species, and degradative ability was associated with production of phenol-oxidizing enzymes. In no case was presumptive degradation of lignin or soluble phenolic, or production of phenol-oxidizing enzymes by mycorrhizal fungi as great as that of the wood decomposing fungi. In the case of the ericoid endophyte Hymenoscyphus ericae, phenol-oxidation was associated with production of an extracellular o-polyphenol oxidase (tyrosinase) which showed optimal activity at a pH of 5–5·5 and temperature of 30°C. The ecological significance of the results is discussed.