Phyllosticta melochiae, an endophytic fungus isolated from the healthy leaves of Melochia corchorifolia, was screened for the production of an anticancer drug, taxol on modified liquid medium and potato dextrose broth medium in culture for the first time. The presence of taxol was confirmed by spectroscopic and chromatographic methods of analysis. The amount of taxol produced by this fungus was quantified by high performance liquid chromatography. The maximum amount of fungal taxol production was recorded as $274{mu}g/L$. The production rate was increased to $5.5{ imes}1,000$ fold than that found in the culture broth of earlier reported fungus, Taxomyces andreanae. The fungal taxol extracted also showed a strong cytotoxic activity in the in vitro culture of tested human cancer cells by apoptotic assay. The results designate that the fungal endophyte, P. melochiae is an excellent candidate for an alternate source of taxol supply and can serve as a potential species for genetic engineering to enhance the production of taxol to a higher level.