DNA sequence analysis of a region of the Streptomyces sp. strain C5 daunomycin biosynthesis gene cluster, located just upstream of the daunomycin polyketide biosynthesis genes, revealed the presence of six complete genes. The two genes reading right to left include genes encoding the potentially translationally coupled gene products, an acyl carrier protein and a ketoreductase, and the four genes reading divergently, left to right, include two open reading frames of unknown function followed by a gene encoding an apparent glycosyltransferase and dauE, encoding aklaviketone reductase. Extracts of Streptomyces lividans TK24 containing recombinant DauE catalyzed the NADPH-specific conversion of aklaviketone, maggiemycin, and 7-oxodaunomycinone to aklavinone, epsilon-rhodomycinone, and daunomycinone, respectively. Neither the product of dauB nor that of the ketoreductase gene directly downstream of the acyl carrier protein gene demonstrated aklaviketone reductase activity.