Oxidative rearrangements play key roles in introducing structural complexity and biological activities of natural products biosynthesized by type II polyketide synthases (PKSs). Chartreusin (1) is a potent antitumor polyketide that contains a unique rearranged pentacyclic aromatic bilactone aglycone derived from a type II PKS. Herein, we report an unprecedented dioxygenase, ChaP, that catalyzes the final α-pyrone ring formation in 1 biosynthesis using flavin-activated oxygen as an oxidant. The X-ray crystal structures of ChaP and two homologues, docking studies, and site-directed mutagenesis provided insights into the molecular basis of the oxidative rearrangement that involves two successive C-C bond cleavage steps followed by lactonization. ChaP is the first example of a dioxygenase that requires a flavin-activated oxygen as a substrate despite lacking flavin binding sites, and represents a new class in the vicinal oxygen chelate enzyme superfamily.