In eukaryotic cells, the unfolded protein response (UPR) pathway plays a crucial role in cellular homeostasis of the endoplasmic reticulum (ER) during exposure to diverse environmental conditions that cause ER stress. Here we report that the human fungal pathogen Cryptococcus neoformans has evolved a unique UPR pathway composed of an evolutionarily conserved Ire1 protein kinase and a novel bZIP transcription factor encoded by HXL1 (HAC1 and XBP1-Like gene 1). C. neoformans HXL1 encodes a protein lacking sequence homology to any known fungal or mammalian Hac1/Xbp1 protein yet undergoes the UPR-induced unconventional splicing in an Ire1-dependent manner upon exposure to various stresses. The structural organization of HXL1 and its unconventional splicing is widely conserved in C. neoformans strains of divergent serotypes. Notably, both C. neoformans ire1 and hxl1 mutants exhibited extreme growth defects at 37°C and hypersensitivity to ER stress and cell wall destabilization. All of the growth defects of the ire1 mutant were suppressed by the spliced active form of Hxl1, supporting that HXL1 mRNA is a downstream target of Ire1. Interestingly, however, the ire1 and hxl1 mutants showed differences in thermosensitivity, expression patterns for a subset of genes, and capsule synthesis, indicating that Ire1 has both Hxl1-dependent and -independent functions in C. neoformans. Finally, Ire1 and Hxl1 were shown to be critical for virulence of C. neoformans, suggesting UPR signaling as a novel antifungal therapeutic target. The unfolded protein response (UPR) is a widely conserved signaling pathway in eukaryotic cells and protects cells from the ER stress causing accumulation of toxic unfolded or misfolded proteins. Nevertheless, the UPR pathway has been poorly exploited as a therapeutic target for treatment of eukaryotic fungal pathogens, mainly due to its evolutionarily conserved features. The present study reports unique evolution of the UPR pathway in the basidiomycetous human fungal pathogen, Cryptococcus neoformans, which causes life-threatening meningoencephalitis in both immunocompromised and immunocompetent individuals. Here, for the first time we identified and characterized the C. neoformans UPR pathway, which is composed of an evolutionarily conserved and a distinct signaling component, an ER stress sensor Ire1 and its downstream bZIP transcription factor Hxl1, respectively. Intriguingly, Cryptococcus Hxl1 is very divergent from yeast Hac1 and human Xbp1, but subject to Ire1-mediated unconventional splicing. The Ire1-Hxl1-dependent UPR pathway functions not only in the major response to ER stress, but also plays critical roles in controlling cell wall integrity, growth at host physiological temperature, antifungal drug susceptibility, and virulence of C. neoformans. Therefore we propose Hxl1 is an ideal target for antifungal drug development, based on its marked divergence from the host Xbp1 transcription factor.