The biosynthesis of chloramphenicol requires a beta-hydroxylation tailoring reaction of the precursor L-p-aminophenylalanine (L-PAPA). Here, it is shown that this reaction is catalyzed by the enzyme CmlA from an operon containing the genes for biosynthesis of L-PAPA and the nonribosomal peptide synthetase CmlP. EPR, Mössbauer, and optical spectroscopies reveal that CmlA contains an oxo-bridged dinuclear iron cluster, a metal center not previously associated with nonribosomal peptide synthetase chemistry. Single-turnover kinetic studies indicate that CmlA is functional in the diferrous state and that its substrate is L-PAPA covalently bound to CmlP. Analytical studies show that the product is hydroxylated L-PAPA and that O(2) is the oxygen source, demonstrating a monooxygenase reaction. The gene sequence of CmlA shows that it utilizes a lactamase fold, suggesting that the diiron cluster is in a protein environment not previously known to effect monooxygenase reactions. Notably, CmlA homologs are widely distributed in natural product biosynthetic pathways, including a variety of pharmaceutically important beta-hydroxylated antibiotics and cytostatics.