FK506 and FK520 are 23-membered macrocyclic polyketides with potent immunosuppressive and antifungal activities. The gene encoding 31-O-demethyl-FK506 methyltransferase, fkbM, was isolated from Streptomyces sp. strains MA6858 and MA6548, two FK506 producers, and Streptomyces hygroscopicus subsp. ascomyceticus, an FK520 producer. The nucleotide sequence of the fkbM gene revealed an open reading frame encoding a polypeptide of 260 amino acids. Disruption of fkbM in Streptomyces sp. strain MA6548 yielded a mutant that produced 31-O-demethyl-FK506, confirming the involvement of the isolated genes in the biosynthesis of FK506 and FK520. Heterologous expression of fkbM in Streptomyces lividans established that fkbM encodes an O-methyltransferase catalyzing the methylation of the C-31 hydroxyl group of 31-O-demethyl-FK506 and FK520. A second open reading frame, fkbD, was found upstream of fkbM in all three aforementioned species and was predicted to encode a protein of 388 residues that showed a strong resemblance to cytochrome P-450 hydroxylases. Disruption of fkbD had a polar effect on the synthesis of the downstream fkbM gene product and resulted in the formation of 9-deoxo-31-O-demethyl-FK506. This established the product of fkbD as the cytochrome P-450 9-deoxo-FK506 hydroxylase, which is responsible for hydroxylation at position C-9 of the FK506 and FK520 macrolactone ring.