Decay D/sup 0/. -->. phiK/sup 0/

We have observed a signal for the decay D/sup 0/..-->..phiK/sup 0/. We find that a broad threshold enhancement in the K/sup +/K/sup -/ mass spectrum in the decay D/sup 0/..-->..K/sup +/K/sup -/K/sup 0/ is the main source of background to the D/sup 0/..-->..phiK/sup 0/ signal. Accounting for this background, we obtain the branching fraction B(D/sup 0/..-->..phiK/sup 0/) = (1.18 +- 0.40 +- 0.17)%.