Diverse bioactive alkaloids with a tryptophan 2,5-diketopiperazine (DKP) core and an annulated structure forming a methylated pyrroloindoline-DKP assembly have been isolated from various microbial sources. However, little is known about their biosynthesis. In this study, a novel indole C3 methyltransferase from Streptomyces sp. HPH0547 was discovered and characterized. Structural elucidation of the products revealed that this enzyme catalyzed unique pyrroloindoline cyclization in tryptophan-containing cyclodipeptides. This is the first C3 methyltransferase reported to catalyze pyrroloindoline cyclization in cyclic dipeptides, which provides a feasible and simple method to access diverse alkaloids.