Panellus stipticus is one of several dozen species of fungi that are bioluminescent. Strains from eastern North America are typically bioluminescent, but those from the Pacific regions of North America and from other continents are not. The luminescence is localized to the edges of the gills and the junction of the gills with the stem and cap. Bioluminescence is also observable with mycelia grown in laboratory culture, and the growth conditions for optimal light production have been studied in detail. Several chemicals have been isolated and characterized that are believed to be responsible for light production. Genetic analysis has shown that luminescence is controlled by a single dominant allele. The luminescent glow of this and other fungi inspired the term foxfire, coined by early settlers in eastern and southern North America. Modern research has probed the potential of P. stipticus as a tool in bioremediation, because of its ability to detoxify various environmental pollutants.
Luminous fungi are found growing on decaying wood, leading to the popular name of “foxfire" or "glow wood" when their glow is visible at night. The responsible oxidative enzymes—known generically as luciferases—produce light by oxidizing a pigment called a luciferin. In some areas, P. stypticus is bioluminescent, and the fruit bodies of these strains will glow in the dark when fresh or sometimes when revived in water after drying.
An early record of luminescence noted in P. stypticus was made by the American naturalist Thomas G. Gentry in 1885. Job Bicknell Ellis, reporting on the phenomenon for the Journal of Mycology, wrote:
"By careful examination, the luminosity was found to proceed from the gills and not the stipe, nor from any fragment of rotten wood attached to the specimen. This phosphoresence was not observed in all specimens brought in for examination, and seemed to depend on some peculiar condition of the air, having been noticed only in specimens gathered in damp weather or just before a storm."
In general, the intensity of fungal bioluminescence decreases after exposure to certain contaminants; this sensitivity is being investigated as a means to develop bioluminescence-based biosensors to test the toxicity of polluted soils.