In the biosynthesis of many macrocyclic natural products by multidomain megasynthases, a carboxy-terminal thioesterase (TE) domain is involved in cyclization and product release; however, it has not been determined whether TE domains can catalyse macrocyclization (and elongation in the case of symmetric cyclic peptides) independently of upstream domains. The inability to decouple the TE cyclization step from earlier chain assembly steps has precluded determination of TE substrate specificity, which is important for the engineered biosynthesis of new compounds. Here we report that the excised TE domain from tyrocidine synthetase efficiently catalyses cyclization of a decapeptide-thioester to form the antibiotic tyrocidine A, and can catalyse pentapeptide-thioester dimerization followed by cyclization to form the antibiotic gramicidin S. By systematically varying the decapeptide-thioester substrate and comparing cyclization rates, we also show that only two residues (one near each end of the decapeptide) are critical for cyclization. This specificity profile indicates that the tyrocidine synthetase TE, and by analogy many other TE domains, will be able to cyclize and release a broad range of new substrates and products produced by engineered enzymatic assembly lines.