Aurachin RE is a prenylated quinoline antibiotic that was first isolated from the genus Rhodococcus. It shows potent antibacterial activity against a variety of Gram-positive bacteria. Here we have identified a minimal biosynthesis gene cluster for aurachin RE in Rhodococcus erythropolis JCM 6824 by using random transposon mutagenesis and heterologous production. The Rhodococcus aurachin (rau) gene cluster consists of genes encoding cytochrome P450 (rauA), prenyltransferase, polyketide synthase, and farnesyl pyrophosphate synthase, as well as others including genes involved in regulation and transport. Markerless gene disruption of rauA resulted in the complete loss of aurachin RE production and in the accumulation of a new aurachin derivative lacking the N-hydroxy group. When the recombinant RauA was expressed in Escherichia coli, it catalyzed N-hydroxylation of the derivative to form aurachin RE. This study establishes the biosynthetic pathway of aurachin RE and provides experimental evidence for the role of P450 RauA in catalyzing N-hydroxylation of the quinoline ring, which is indispensable for the antibacterial activity of aurachin RE.