FK520 (ascomycin) is a macrolide produced by Streptomyces hygroscopicus var. ascomyceticus (ATCC 14891) that has immunosuppressive, neurotrophic and antifungal activities. To further elucidate the biosynthesis of this and related macrolides, we cloned and sequenced an 80kb region encompassing the FK520 gene cluster. Genes encoding the three polyketide synthase (PKS) subunits (fkbB, fkbC and fkbA), the peptide synthetase (fkbP), the 31-O-methyltransferase (fkbM), the C-9 hydroxylase (fkbD) and the 9-hydroxyl oxidase (fkbO) had the same organization as the genes reported in the FK506 gene cluster of Streptomyces sp. MA6548 (Motamedi, H., Shafiee, A., 1998. The biosynthetic gene cluster for the macrolactone ring of the immunosuppressant FK506. Eur. J. Biochem. 256, 528-534). Disruption of a PKS gene in the cluster using the φC31 phage vector, KC515, led to antibiotic non-producing strains, proving the identity of the cluster. Previous labeling data have indicated that FK520 biosynthesis uses novel polyketide extender units (Byrne, K.M., Shafiee, A., Nielson, J., Arison, B., Monaghan, R.L., Kaplan, L., 1993. The biosynthesis and enzymology of an immunosuppressant, immunomycin, produced by Streptomyces hygroscopicus var, ascomyceticus. Dev. Ind. Microbiol. 32, 29-45). Genes in the flanking regions of the FK520 cluster were identified that appear to be involved in synthesis of these extender units. All but two of these genes were homologous to genes with known function. In addition to a crotonyl-CoA reductase gene (fkbS), at least two other genes are proposed to be involved in biosynthesis of the atypical PKS extender unit ethylmalonyl-CoA, which accounts for the ethyl side chain on C-21 of FK520. A set of five contiguous genes (fkbGHIJK) is proposed to be involved in biosynthesis of an unusual PKS extender unit bearing an oxygen on the alpha-carbon, and leading to the 13- and 15-methoxy side chains. These putative precursor synthesis genes in the flanking regions of the FK520 cluster are not found in the flanking regions of the rapamycin cluster (Molnár, I., Aparicio, J.F., Haydock, S.F., Khaw, L.E., Schwecke, T., König, A., Staunton, J., Leadlay, P.F., 1996. Organisation of the biosynthetic gene cluster for rapamycin in Streptomyces hygroscopicus: analysis of genes flanking the polyketide synthase. Gene 169, 1-7), consistent with labeling data showing that rapamycin biosynthesis uses only malonyl and methylmalonyl extender units.