Telomestatin, a strong telomerase inhibitor with G-quadruplex stabilizing activity, is a potential therapeutic agent for treating cancers. Difficulties in isolating telomestatin from microbial cultures and in chemical synthesis are bottlenecks impeding the wider use. Therefore, improvement in telomestatin production and structural diversification are required for further utilization and application. Here, we discovered the gene cluster responsible for telomestatin biosynthesis, and achieved production of telomestatin by heterologous expression of this cluster in the engineered Streptomyces avermitilis SUKA strain. Utilization of an optimal promoter was essential for successful production. Gene disruption studies revealed that the tlsB, tlsC, and tlsO–T genes play key roles in telomestatin biosynthesis. Moreover, exchanging TlsC core peptide sequences resulted in the production of novel telomestatin derivatives. This study sheds light on the expansion of chemical diversity of natural peptide products for drug development.