Research on freshwater fungi has concentrated on their role in plant litter decomposition in streams. Higher fungi dominate over bacteria in terms of biomass, production and enzymatic substrate degradation. Microscopy-based studies suggest the prevalence of aquatic hyphomycetes, characterized by tetraradiate or sigmoid spores. Molecular studies have consistently demonstrated the presence of other fungal groups, whose contributions to decomposition are largely unknown. Molecular methods will allow quantification of these and other microorganisms. The ability of aquatic hyphomycetes to withstand or mitigate anthropogenic stresses is becoming increasingly important. Metal avoidance and tolerance in freshwater fungi implicate a sophisticated network of mechanisms involving external and intracellular detoxification. Examining adaptive responses under metal stress will unravel the dynamics of biochemical processes and their ecological consequences. Freshwater fungi can metabolize organic xenobiotics. For many such compounds, terrestrial fungal activity is characterized by cometabolic biotransformations involving initial attack by intracellular and extracellular oxidative enzymes, further metabolization of the primary oxidation products via conjugate formation and a considerable versatility as to the range of metabolized pollutants. The same capabilities occur in freshwater fungi. This suggests a largely ignored role of these organisms in attenuating pollutant loads in freshwaters and their potential use in environmental biotechnology.