Esterified drimane-type sesquiterpene lactones such as astellolides display various biological activities and are widely produced by plants and fungi. Given their low homology to known sesquiterpene cyclases, the genes responsible for their biosynthesis have not been uncovered yet. Here, we identified the astellolide gene cluster from Aspergillus oryzae and discovered a novel sesquiterpene biosynthetic machinery consisting of AstC, AstI, and AstK. All these enzymes are annotated as haloacid dehalogenase-like hydrolases, whereas AstC also contains a DxDTT motif conserved in class II diterpene cyclases. Based on enzyme reaction analyses, we found that AstC catalysed the protonation-initiated cyclisation of farnesyl pyrophosphate into drimanyl pyrophosphate. This was successively dephosphorylated by AstI and AstK to produce drim-8-ene-11-ol. Moreover, we also identified and characterised a unique non-ribosomal peptide synthetase, AstA, responsible for esterifying aryl acids to drimane-type sesquiterpene lactones. In this study, we highlight a new biosynthetic route for producing sesquiterpene and its esterified derivative. Our findings shed light on the identification of novel sesquiterpenes via genome mining.