The gas carbon dioxide (CO₂) plays a critical role in microbial and mammalian respiration, photosynthesis in algae and plants, chemoreception in insects, and even global warming [1–5]. However, how CO₂ is transported, sensed, and metabolized by microorganisms is largely not understood. For instance, CO₂ is known to induce production of polysaccharide capsule virulence determinants in pathogenic bacteria and fungi via unknown mechanisms [6–8]. Therefore, we studied CO₂ actions in growth, differentiation, and virulence of the basidiomycetous human fungal pathogen Cryptococcus neoformans. The CAN2 gene encoding β-carbonic anhydrase in C. neoformans was found to be essential for growth in environmental ambient conditions but dispensable for in vivo proliferation and virulence at the high CO₂ levels in the host. The can2Δ mutant in vitro growth defect is largely attributable to defective fatty acid synthesis. CO₂ was found to inhibit cell-cell fusion but not filamentation during sexual reproduction. The can2 mutation restored early mating events in high CO₂ but not later steps (fruiting body formation, sporulation), indicating a major role for carbonic anhydrase and CO₂/HCO₃⁻ in this developmental cascade leading to the production of infectious spores. Our studies illustrate diverse roles of an ancient enzyme class in enabling environmental survival of a ubiquitous human pathogen.