Biotransformation of phytosterol (PS) by a newly isolated mutant Mycobacterium neoaurum ZJUVN-08 to produce androstenedione has been investigated in this paper. The parameters of the biotransformation process were optimized using fractional factorial design and response surface methodology. Androstenedione was the sole product in the fermentation broth catalyzed by the mutant M. neoaurum ZJUVN-08 strain. Results showed that molar ratio of hydroxypropyl-β-cyclodextrin (HP-β-CD) to PS and substrate concentrations were the two most significant factors affecting androstenedione production. By analyzing the statistical model of three-dimensional surface plot, the optimal process conditions were observed at 0.1 g/L inducer, pH 7.0, molar ratio of HP-β-CD to PS 1.92:1, 8.98 g/L PS, and at 120 h of incubation time. Under these conditions, the maximum androstenedione yield was 5.96 g/L and nearly the same with the non-optimized (5.99 g/L), while the maximum PS conversion rate was 94.69% which increased by 10.66% compared with the non-optimized (84.03%). The predicted optimum conditions from the mathematical model were in agreement with the verification experimental results. It is considered that response surface methodology was a powerful and efficient method to optimize the parameters of PS biotransformation process.