A novel modified alternan, produced by using newly isolated strains of Penicillium sp., was physically characterized. High molecular weight native alternan was progressively modified to lower molecular weight heterodisperse forms, associated with a reduction in absorbance at 225 nm, light scattering, and opalescence. Methylation analysis indicated that modified alternan has a linkage pattern similar to that of native alternan. The solution viscosity properties of modified alternan resemble those of ultrasonicated alternan and commercial gum arabic. However, alternan lacks the emulsification capacity of gum arabic. Alternan solutions are stable for at least 7 days under all conditions tested, from 4 to 70 °C and from pH 3–9. Dry preparations of alternan are bright white powders that are not highly hygroscopic. Thus, modified alternan is promising for further development as a gum arabic substitute, particularly in food applications requiring a low-viscosity bulking agent.