The top 1.0-1.5 m of the 6 m thick Palangkaraya peat deposit in Indonesia is decaying aerobically and contains up to 22% oxidised plant material (i.e. ＇inertinite＇). In contrast, intervals below the level of water table fluctuation contain less than 5% oxidised material. Analysis of fungal remains in the peat show there is a coincident increase in total aggregate hyphal length (a measure of fungal activity) with the proportion of oxidised plant constituents. Macroscopically, the top of the peat (which contains the greatest proportion of oxidised material) is black, lacks wood fragments and would be classed as a sapric or sapric-hemic peat. Oxidised material in the peat is predominantly epidermal cell walls of primary roots. These cell walls are abnormally thickened and display a distinctive dentate structure in cross section. The texture of the cell walls are either laminated or granular and often contains intercellular nodules. These features, together with the absence of charcoal layers in the peat, suggest that oxidised constituents were derived from fungal alteration. Furthermore, the coincident increase in fungal hyphal length with the proportion of oxidised material may suggest a causal link. Based on texture, morphology and size, the same types of oxidised plant material found in the Palangkaraya peat deposit have been identified in coal beds of Tertiary age from Indonesia, New Zealand and the U.S.A. This indicates similar fungal alteration occurred in the past and may account for some of the oxidised constituents found in coal. If the Palangkaraya mire is used as a model, fungal alteration zones may be recognised in coals as relatively thick (0.5-2.0 m), laterally extensive, macroscopically dull coal.