Six potential diketide substrates for the squalestatin tetraketide synthase (SQTKS) dehydratase (DH) domain were synthesised as N-acetyl cysteamine thiolesters (SNAC) and tested in kinetic assays as substrates with an isolated DH domain. 3R-3-hydroxybutyryl SNAC 3R-16 was turned over by the enzyme, but its enantiomer was not. Of the four 2-methyl substrates only 2R,3R-2-methyl-3-hydroxybutyryl SNAC 2R,3R-8 was a substrate. Combined with stereochemical information from the isolated SQTKS enoyl reductase (ER) domain, our results provide a near complete stereochemical description of the first cycle of beta-modification reactions of a fungal highly reducing polyketide synthase (HR-PKS). The results emphasise the close relationship between fungal HR-PKS and vertebrate fatty acid synthases (vFAS).