We isolated bacterial strains tolerant to high concentrations of oleic acid from soil samples, and studied biotransformation of fatty acids with the bacteria. We found that a strain BL0–3 identified as Micrococcus luteus metabolized oleic acid to 10-hydroxystearic acid, 10-oxostearic acid, and 4-oxolauric acid. Palmitoleic acid and myristoleic acid also served as substrates in the biotransformation, and 10-oxopalmitic acid and 10-oxomyristic acid were produced, respectively. The formation of 4-oxolauric acid from oleic acid was inhibited by compounds which inhibit β-oxidation of fatty acids.