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The mycotoxin terrein is derived from the C 10 ‐precursor 6‐hydroxymellein (6‐HM) via an oxidative ring contraction. Although the corresponding biosynthetic gene cluster (BGC) has been identified, details of the enzymatic oxidative transformations are lacking. Combining heterologous expression and in vitro studies we show that the flavin‐dependent monooxygenase (FMO) TerC catalyzes the initial oxidative decarboxylation of 6‐HM. The reactive intermediate is further hydroxylated by the second FMO TerD to yield a highly oxygenated aromatic species, but further reconstitution of the pathway was hampered. A related BGC was identified in the marine‐derived  Roussoella sp . DLM33 and confirmed by heterologous expression. These studies demonstrate that the biosynthetic pathways of terrein and related (polychlorinated) congeners diverge after oxidative decarboxylation of the lactone precursor that is catalyzed by a conserved FMO and further indicate that early dehydration of the side chain is an essential step.

Early Oxidative Transformations During the Biosynthesis of Terrein and Related Natural Products