The polycycles merochlorin A and B are complex halogenated meroterpenoid natural products with significant antibacterial activities and are produced by the marine bacterium Streptomyces sp. strain CNH-189. Heterologously produced enzymes and chemical synthesis are employed herein to fully reconstitute the merochlorin biosynthesis in vitro. The interplay of a dedicated type III polyketide synthase, a prenyl diphosphate synthase, and an aromatic prenyltransferase allow formation of a highly unusual aromatic polyketide-terpene hybrid intermediate which features an unprecedented branched sesquiterpene moiety from isosesquilavandulyl diphosphate. As supported by in vivo experiments, this precursor is furthermore chlorinated and cyclized to merochlorin A and isomeric merochlorin B by a single vanadium-dependent haloperoxidase, thus completing the remarkably efficient pathway.