The biosynthetic gene cluster for the kutzneride family of hexapeptidolactones includes the four-gene cassette ktzABCD postulated to generate a nonproteinogenic amino acid. Encoded by this cassette are the nonheme Fe-II-dependent halogenase KtzD and the acyl-CoA dehydrogenase-like flavoprotein KtzA, proposed to work in conjunction with adenylating protein KtzB and carrier protein KtzC. In the present work, we report the in vitro reconstitution of this four-protein system and identify the final product as (1S,2R)-allocoronamic acid bound in thioester linkage to KtzC. Further analysis of KtzD and KtzA support a biosynthetic pathway that involves KtzD-mediated generation of a y-chloroisoleucyl intermediate which is cyclized to the final product by KtzA without redox participation of the bound flavin cofactor. This work introduces a new monomer for potential incorporation into nonribosomal peptides and validates the unique strategy for its biosynthesis.