Streptomyces ambofaciens has an 8-Mb linear chromosome ending in 200-kb terminal inverted repeats. Analysis of the F6 cosmid overlapping the terminal inverted repeats revealed a locus similar to type II polyketide synthase (PKS) gene clusters. Sequence analysis identified 26 open reading frames, including genes encoding the -ketoacyl synthase (KS), chain length factor (CLF), and acyl carrier protein (ACP) that make up the minimal PKS. These KS, CLF, and ACP subunits are highly homologous to minimal PKS subunits involved in the biosynthesis of angucycline antibiotics. The genes encoding the KS and ACP subunits are transcribed constitutively but show a remarkable increase in expression after entering transition phase. Five genes, including those encoding the minimal PKS, were replaced by resistance markers to generate single and double mutants (replacement in one and both terminal inverted repeats). Double mutants were unable to produce either diffusible orange pigment or antibacterial activity against Bacillus subtilis. Single mutants showed an intermediate phenotype, suggesting that each copy of the cluster was functional. Transformation of double mutants with a conjugative and integrative form of F6 partially restored both phenotypes. The pigmented and antibacterial compounds were shown to be two distinct molecules produced from the same biosynthetic pathway. High-pressure liquid chromatography analysis of culture extracts from wild-type and double mutants revealed a peak with an associated bioactivity that was absent from the mutants. Two additional genes encoding KS and CLF were present in the cluster. However, disruption of the second KS gene had no effect on either pigment or antibiotic production.