Wood samples were collected from a mature coastal <i>Thuja plicata</i> (Western Red Cedar) at Maple Ridge, British Columbia. Heartwood discoloration from light straw to red and various shades of brown was associated with a succession of fungi in the order </i>Sporothrix</i> sp., <i>Kirschsteiniella thujina</i> and <i>Phialophora</i> sp. The thujaplicin content of discolored samples was less than half that of straw-colored samples. Thujin (a lactone) was found only in discolored wood; wood block bioassays showed that <i>Sporothrix</i> sp. induced the formation of this compound, probably by oxidative dimerization and isomerization of thujaplicin. Thujin, unlike thujaplicin, showed no toxicity to <i>Poria rivulosa</i>, a common cause of decay of coastal <i>Thuja plicata</i>.