Germicidin synthase (Gcs) from Streptomyces coelicolor is a type III polyketide synthase (PKS) with broad substrate flexibility for acyl groups linked through a thioester bond to either coenzyme A (CoA) or acyl carrier protein (ACP). Germicidin synthesis was reconstituted in vitro by coupling Gcs with fatty acid biosynthesis. Since Gcs has broad substrate flexibility, we directly compared the kinetic properties of Gcs with both acyl-ACP and acyl-CoA. The catalytic efficiency of Gcs for acyl-ACP was 10-fold higher than for acyl-CoA, suggesting a strong preference toward carrier protein starter unit transfer. The 2.9 angstrom germicidin synthase crystal structure revealed canonical type HI PKS architecture along with an unusual helical bundle of unknown function that appears to extend the dimerization interface. A pair of arginine residues adjacent to the active site affect catalytic activity but not ACP binding. This investigation provides new and surprising information about the interactions between type III PKSs and ACPs that will facilitate the construction of engineered systems for production of novel polyketides.