Many polyketide antibiotics contain macrolactones that arise from polyketide synthase chain release via thioesterase (TE) domain-catalyzed macrolactonization. The hydroxyl groups utilized in such macrolactonization reactions typically derive from reduction of beta-ketothioester intermediates in polyketide chain assembly. The stambomycins are a group of novel macrolide antibiotics with promising anticancer activity that we recently discovered via rational activation of a silent polyketide biosynthetic gene cluster in Streptomyces ambofaciens. Here we report that the hydroxyl group utilized for formation of the macrolactone in the stambomycins is derived from cytochrome P450-catalyzed hydroxylation of the polyketide chain rather than keto reduction during chain assembly. This is a novel mechanism for macrolactone formation in polyketide antibiotic biosynthesis.