The antifungal phoslactomycins (PLM A-F), produced by Streptomyes sp. HK803, are structurally unusual in that three of their four double bonds are in the cis form (Delta(12,13), Delta(14,15), Delta(2.3)). The PLM polyketide synthase (PKS) has the predicted dehydratase catalytic domain in modules 1, 2, and 5 required for establishing two of these cis double bonds (Delta(12,13), Delta(14,15)), as well as the only trans AV double bond. By contrast, the formation of the cis Delta(2,3) in the unsaturated lactone moiety of PLMs has presented an enigma because the predicted dehydratase domain in module 7 is absent. Herein, we have demonstrated that the plm T-2 gene product, with no homology to PKS dehydratase domains, is required for efficient formation of the Cis Delta(2.3) alkene. A series of new PLM products in which the C3 hydroxyl group is retained are made in plm T-2 deletion mutants. In all of these cases, however, the hydroxyl group is esterified with malonic acid. These malonylated PLM products are converted to the corresponding Cis Delta(2,3) PLM products and acetic acid by a facile base-catalyzed decarboxylative elimination reaction. Complete or partial restoration of natural PLM production in a plm T-2 deletion mutant can be accomplished by plasmid based expression of plm T-2 or fos ORF4 (a homologous gene from the fostriecin biosynthetic genecluster), respectively. The data indicate that dehydratase-independent pathways also function in establishment of unsaturated 6-membered lactone moieties in other PKS pathways and provide the first biosynthetic insights into the possible routes by which unusual malonylated polyketide products are generated.