Gregatin A (1) is a fungal polyketide featuring an alkylated furanone core, but the biosynthetic mechanism to furnish the intriguing molecular skeleton has yet to be elucidated. Herein, we have identified the biosynthetic gene cluster of gregatin A (1) in Penicillium sp. sh18 and investigated the mechanism that produces the intriguing structure of 1 by in vivo and in vitro reconstitution of its biosynthesis. Our study established the biosynthetic route leading to 1 and illuminated that 1 is generated by the fusion of two different polyketide chains, which are, amazingly, synthesized by a single polyketide synthase GrgA with the aid of a trans-acting enoylreductase GrgB. Chain fusion, as well as chain hydrolysis, is catalyzed by an α/β hydrolase, GrgF, hybridizing the C11 and C4 carbon chains by Claisen condensation. Finally, structural analysis and mutational experiments using GrgF provided insight into how the enzyme facilitates the unusual chain-fusing reaction. In unraveling a new biosynthetic strategy involving a bifunctional PKS and a polyketide fusing enzyme, our study expands our knowledge concerning fungal polyketide biosynthesis.