Compound K (CK), a highly active and bioavailable derivative obtained from protopanaxadiol ginsenosides, displays a wide variety of pharmacological properties, especially antitumor activity. However, the inadequacy of natural sources limits its application in the pharmaceutical industry. In this study, we firstly discovered that Cordyceps sinensis was a potent biocatalyst for the biotransformation of ginsenoside Rb1 into CK. After a series of investigations on the biotransformation parameters, an optimal composition of the biotransformation culture was found to be lactose, soybean powder and MgSO₄ without controlling the pH. Also, an optimum temperature of 30 °C for the biotransformation process was suggested in a range of 25 °C-50 °C. Then, a biotransformation pathway of Rb1→Rd→F2→CK was established using high performance liquid chromatography/quadrupole time-of-flight mass spectrometry (HPLC-Q-TOF-MS). Our results demonstrated that the molar bioconversion rate of Rb1 to CK was more than 82% and the purity of CK produced by C. sinensis under the optimized conditions was more than 91%. In conclusion, the combination of C. sinensis and the optimized conditions is applicable for the industrial preparation of CK for medicinal purposes.