© 2016 Elsevier Ltd. All rights reserved. Xantholipin and several related polycyclic xanthone antibiotics feature a unique xanthone ring nucleus within a highly oxygenated, angular, fused hexacyclic system. In this study, we demonstrated that a flavin-dependent monooxygenase (FMO) XanO4 catalyzes the oxidative transformation of an anthraquinone to a xanthone system during the biosynthesis of xantholipin. In vitro isotopic labeling experiments showed that the reaction involves sequential insertion of two oxygen atoms, accompanied by an unexpected cryptic demethoxylation reaction. Moreover, characterizations of homologous FMOs of XanO4 suggested the generality of the XanO4-like-mediated reaction for the assembly of a xanthone ring in the biosynthesis of polycyclic xanthone antibiotics. These findings not only expand the repertoire of FMO activities but also reveal a novel mechanism for xanthone ring formation.