A contiguous region of about 30 kbp of DNA putatively encoding reactions in daunomycin biosynthesis was isolated from Streptomyces sp. strain C5 DNA. The DNA sequence of an 8.1-kbp EcoRI fragment, which hybridized with actI polyketide synthase (PKS) and actIII polyketide reductase (PKR) gene probes, was determined, revealing seven complete open reading frames (ORFs), two in one cluster and five in a divergently transcribed cluster. The former two genes are likely to encode PKR and a bifunctional cyclase/dehydrase. The five latter genes encode: (i) a homolog of TcmH, an oxygenase of the tetracenomycin biosynthesis pathway; (ii) a PKS Orf1 homolog; (iii) a PKS Orf2 homolog (chain length factor); (iv) a product having moderate sequence identity with Escherichia coli beta-ketoacyl acyl carrier protein synthase III but lacking the conserved active site; and (v) a protein highly similar to several acyltransferases. The DNA within the 8.1-kbp EcoRI fragment restored daunomycin production to two dauA non-daunomycin-producing mutants of Streptomyces sp. strain C5 and restored wild-type antibiotic production to Streptomyces coelicolor B40 (act VII; nonfunctional cyclase/dehydrase), and to S. coelicolor B41 (actIII) and Streptomyces galilaeus ATCC 31671, strains defective in PKR activity.