Chloroxylenol (PCMX) is applied as a preservative and disinfectant in personal care products, currently recommended for use to inactivate the SARS-CoV-2 virus. Its intensive application leads to the release of PCMX into the environment, which can have a harmful impact on aquatic and soil biotas. The aim of this study was to assess the mechanism of chloroxylenol biodegradation by the fungal strains Cunninghamella elegans IM 1785/21GP and Trametes versicolor IM 373, and investigate the ecotoxicity of emerging by-products. The residues of PCMX and formed metabolites were analysed using GC-MS. The elimination of PCMX in the cultures of tested microorganisms was above 70%. Five fungal by-products were detected for the first time. Identified intermediates were performed by dechlorination, hydroxylation, and oxidation reactions catalysed by cytochrome P450 enzymes and laccase. A real-time quantitative PCR analysis confirmed an increase in CYP450 genes expression in C. elegans cells. In the case of T. versicolor, spectrophotometric measurement of the oxidation of 2,20-azino-bis (3-ethylbenzthiazoline-6-sulfonic acid) (ABTS) showed a significant rise in laccase activity during PCMX elimination. Furthermore, with the use of bioindicators from different ecosystems (Daphtoxkit F and Phytotoxkit), it was revealed that the biodegradation process of PCMX had a detoxifying nature.