Using the CLEO detector at the Cornell e(+)e(-) storage ring CESR we s
tudy the two-photon production of Lambda<(Lambda)over bar>, making the
first observation of gamma gamma-->Lambda<(Lambda)over bar>. We prese
nt the cross section for gamma gamma-->Lambda<(Lambda)over bar> asa fu
nction of the gamma gamma center of mass energy and compare it to that
predicted by the quark-diquark model.