The enzymatic basis of ribosomal peptide natural product prenylation has not been reported. Here, we characterize a prenyltransferase, LynF, from the TruF enzyme family. LynF is the first characterized representative of the TruF protein family, which is responsible for both reverse- and forward-O-prenylation of tyrosine, serine, and threonine in cyclic peptides known as cyanobactins. We show that LynF reverse O-prenylates tyrosine in macrocyclic peptides. Based upon these results, we propose that the TruF family prenylates mature cyclic peptides, from which the leader sequence and other enzyme recognition elements have been excised. This differs from the common model of ribosomal peptide biosynthesis, in which a leader sequence is required to direct post-translational modifications. In addition, we find that reverse O-prenylated tyrosine derivatives undergo a facile Claisen rearrangement at 'physiological' temperature in aqueous buffers, leading to forward C-prenylated products. Although the Claisen rearrangement route to natural products has been chemically anticipated for at least 40 years, it has not been demonstrated as a route to prenylated natural products. Here, we show that the Claisen rearrangement drives phenolic C-prenylation in at least one case, suggesting that this route should be reconsidered as a mechanism for the biosynthesis of prenylated phenolic compounds.