The present invention relates to a fungal C16/18 fatty acid elongase that is able to catalyze the conversion of palmitate (16:0) to stearic acid (18:0). Specifically, the nucleotide sequence of a Mortierella alpina C16/18 fatty acid elongase is provided (designated as “ELO3”). Methods of increasing microbial oil production, increasing carbon flux into the polyunsaturated fatty acid biosynthetic pathway and increasing the content of polyunsaturated fatty acids by over-expression of the C16/18 fatty acid elongase are described herein. Most desirably, the substrate specificity of the instant ELO3 will be particularly useful to enable accumulation of long-chain polyunsaturated fatty acids in oleaginous yeast, such as Yarrowia lipolytica.