Telomycin (TEM) is a cyclic depsipeptide antibiotic active against Gram-positive bacteria. In this study, five new natural telomycin analogues produced by Streptomyces canus ATCC 12646 were identified. To understand the biosynthetic machinery of telomycin and to generate more analogues by pathway engineering, the TEM biosynthesis gene cluster has been characterized from S. canus ATCC 12646: it spans approximately 80.5 kb and consists of 34 genes encoding fatty acid ligase, nonribosomal peptide syhthetases (NRPSs), regulators, transporters, and tailoring enzymes. The gene cluster was heterologously expressed in Streptomyces albus J1074 setting the stage for convenient biosynthetic engineering, mutasynthesis, and production optimization. Moreover, in-frame deletions of one hydroxylase and to P450 monooxygenase genes resulted in the production of novel telomycin derivatives, revealing these genes to be responsible for the specific modification by hydroxylation of three amino acids found in the TEM backbone. Surprisingly, natural lipopeptide telomycin precursors were identified when characterizing an unusual precursor deacylation mechanism during telomycin maturation. By in vivo gene inactivation and in vitro biochemical characterization of the recombinant enzyme Tem25, the maturation process was shown-to involve the cleavage of previously unknown telomycin precursor-lipopeptides, to yield 6-methylheptanoic acid and telomycins. These lipopeptides were isolated from an inactivation mutant of tem25 encoding a (de)acylase,structurally elucidated, and then shown to be deacylated by recombinant Tem25. The TEM precursor and several semisynthetic lipopeptide TEM derivatives showed rapid bactericidal killing and were active against several multidrug-resistant (MDR) Gram-positive pathogens, opening the path to future chemical optimization of telomycin for pharmaceutical application.