ABSTRACT: Picromycin/methymycin synthase (PICS) is a modular polyketide synthase (PKS) that is responsible for the biosynthesis of both 10-deoxymethynolide (1) and narbonolide (2), the parent 12- and 14-membered aglycone precursors of the macrolide antibiotics methymycin and picromycin, respectively. PICS module 2 is a dehydratase (DH)-containing module that catalyzes the formation of the unsaturated triketide intermediate using malonyl-CoA as the chain extension substrate. Recombinant PICS module 2+TE, with the PICS thioesterase domain appended to the C-terminus to allow release of polyketide products, was expressed in Escherichia coli. Purified PICS module 2+TE converted malonyl-CoA and 4, the N-acetylcysteamine thioester of (2S,3R)-2-methyl-3-hydroxypentanoic acid, to a 1:2 mixture of the triketide acid (4S,5R)-4-methyl-5-hydroxy-2-heptenoic acid (5) and (3S,4S,5R)-3,5-dihydroxy-4-methyl-n-heptanoic acid-delta-lactone (10) with a combined kcat of 0.6 min(-1). The triketide lactone 10 is formed by thioesterase-catalyzed cyclization of the corresponding d-3-hydroxyacyl-SACP intermediate, a reaction which competes with dehydration catalyzed by the dehydratase domain. PICS module 2+TE showed a strong preference for the syn-diketide-SNAC 4, with a 20-fold greater kcat/K(m) than the anti-(2S,3S)-diketide-SNAC 14, and a 40-fold advantage over the syn-(2R,3S)-diketide-SNAC 13. PICS module 2(DH(0))+TE, with an inactivated DH domain, produced exclusively 10, while three PICS module 2(KR(0))+TE mutants, with inactivated KR domains, produced exclusively or predominantly the unreduced triketide ketolactone, (4S,5R)-3-oxo-4-methyl-5-hydroxy-n-heptanoic acid-delta-lactone (7). These studies establish for the first time the structure and stereochemistry of the intermediates of a polyketide chain elongation cycle catalyzed by a DH-containing module, while confirming the importance of key active site residues in both KR and DH domains.