Equisetin synthetase (EqiS), from the filamentous fungus Fusarium heterosporum ATCC 74349, was initially assigned on the basis of genetic knockout and expression analysis. Increasing inconsistencies in experimental results led us to question this assignment. Here, we sequenced the F. heterosporum genome, revealing two hybrid polyketide-peptide proteins that were candidates for the equisetin synthetase. The surrounding genes in both clusters had the needed auxiliary genes that might be responsible for producing equisetin. Genetic mutation, biochemical analysis, and recombinant expression in the fungus enabled us to show that the initially assigned EqiS does not produce equisetin but instead produces a related 2,4-pyrrolidinedione, fusaridione A, that was previously unknown. Fusaridione A is methylated in the 3-position of the pyrrolidinedione, which has not otherwise been found in natural products, leading to spontaneous reverse-Dieckmann reactions. A newly described gene cluster, eqx, is responsible for producing equisetin.