Tremella encephala is a haustorial biotrophic fungal parasite which grows both in the yeast and mycelial form during its life cycle. Biology of such non-commercial parasitic and dimorphic fungi is poorly known. We examined the effects of different nitrogen and carbon sources on growth and morphogenetic switch in T. encephala, as well as its host-specificity, host-parasite interaction and the effect of media on parasitism by culturing it alone, together with the known host Stereum sanguinolentum and with the possible host Stereum hirsutum on two different media. Tremella encephala utilized many organic and inorganic nitrogen sources and showed high variation in cellular nitrogen concentrations. Only glucose, glycerol and D-mannitol were exploited as the sole sources of carbon. Remarkable variation in dimorphism was observed between and within the strains. Parasitic interaction was not manifested in this laboratory study. Tremella encephala is not a strictly obligate parasite. Under laboratory conditions it grew prevailingly in the yeast form which may be more common in nature than currently known.