Duramycin is a heavily post-translationally modified peptide that binds phosphatidylethanolamine. It has been investigated as an antibiotic, an inhibitor of viral entry, a therapeutic for cystic fibrosis, and a tumor and vasculature imaging agent. Duramycin contains a β-hydroxylated Asp (Hya) and four macrocycles, including an essential lysinoalanine (Lal) cross-link. The mechanism of Lal formation is not known. Here we show that Lal is installed stereospecifically by DurN via addition of Lys19 to a dehydroalanine. The structure of DurN reveals an unusual dimer with a new fold. Surprisingly, in the structure of duramycin bound to DurN, no residues of the enzyme are near the Lal cross-link. Instead, Hya15 of the substrate makes interactions with Lal, suggesting it acts as a base to deprotonate Lys19 during catalysis. Biochemical data suggest that DurN preorganizes the reactive conformation of the substrate, such that the Hya15 of the substrate can serve as the catalytic base for Lal formation.