Abstract Biodegraded material and the remains of micro-organisms have been shown by transmission electron microscopy to be widespread in a range of Australian coals. Virtually all of this alteration, which has had significant effects on the properties subsequently attained by the coal, must have occurred at a very early stage of deposition. The micro-organisms appear to be mainly fungi and bacteria which have not only modified higher plant tissues but also represent significant amounts of added organic matter. Important amongst the latter are small but abundant occurrences of lipid-rich material of relevance in relation to the generation of hydrocarbons. The results suggest the need for reinterpretation of some light microscopic observations.