Bacterial secondary metabolic pathways are responsible for the biosynthesis of thousands of bioactive natural products. Many enzymes residing in these pathways have evolved to catalyze unusual chemical transformations, which is facilitated by an evolutionary pressure promoting chemical diversity. Such divergent enzyme evolution has been observed in S-adenosyl-l-methionine (SAM)-dependent methyltransferases involved in the biosynthesis of anthracycline anticancer antibiotics; whereas DnrK from the daunorubicin pathway is a canonical 4-O-methyltransferase, the closely related RdmB (52% sequence identity) from the rhodomycin pathways is an atypical 10-hydroxylase that requires SAM, a thiol reducing agent, and molecular oxygen for activity. Here, we have used extensive chimeragenesis to gain insight into the functional differentiation of RdmB and show that insertion of a single serine residue to DnrK is sufficient for introduction of the monooxygenation activity. The crystal structure of DnrK-Ser in complex with aclacinomycin T and S-adenosyl-l-homocysteine refined to 1.9-Å resolution revealed that the inserted serine S297 resides in an α-helical segment adjacent to the substrate, but in a manner where the side chain points away from the active site. Further experimental work indicated that the shift in activity is mediated by rotation of a preceding phenylalanine F296 toward the active site, which blocks a channel to the surface of the protein that is present in native DnrK. The channel is also closed in RdmB and may be important for monooxygenation in a solvent-free environment. Finally, we postulate that the hydroxylation ability of RdmB originates from a previously undetected 10-decarboxylation activity of DnrK.