Most terpenoids have been isolated from plants and fungi and only a few from bacteria. However, an increasing number of genome sequences indicate that bacteria possess a variety of terpenoid cyclase genes. We characterized a sesquiterpene cyclase gene (SGR2079, named gcoA) found in Streptomyces griseus. When expressed in Streptomyces lividans, gcoA directed production of a sesquiterpene, isolated and determined to be (+)-caryolan-1-ol using spectroscopic analyses. (+)-Caryolan-1-ol was also detected in the crude cell lysate of wild-type S. griseus but not in a gcoA knockout mutant, indicating that GcoA is a genuine (+)-caryolan-1-ol synthase. Enzymatic properties were characterized using N-terminally histidine-tagged GcoA, produced in Escherichia coli. As expected, incubation of the recombinant GcoA protein with farnesyl diphosphate yielded (+)-caryolan-1-ol. However, a small amount of another sesquiterpene was also detected. This was identified as the bicyclic sesquiterpene hydrocarbon (+)-β-caryophyllene by comparison with an authentic sample using GC-MS. Incorporation of a deuterium atom into the C-9 methylene of (+)-caryolan-1-ol in an in vitro GcoA reaction in deuterium oxide indicated that (+)-caryolan-1-ol was synthesized by a proton attack on the C-8/C-9 double bond of (+)-β-caryophyllene. Several β-caryophyllene synthases have been identified from plants, but these cannot synthesize caryolan-1-ol. Although caryolan-1-ol has been isolated previously from several plants, the enzyme responsible for its biosynthesis has not been identified previously. GcoA is thus the first known caryolan-1-ol synthase. Isolation of caryolan-1-ol from microorganisms is unprecedented.