The nysL gene, encoding a putative P450 monooxygenase, was identified in the nystatin biosynthetic gene cluster of Streptomyces noursei. Although it has been proposed that NysL is responsible for hydroxylation of the nystatin precursor, experimental evidence for this activity was lacking. The nysL gene was inactivated in S. noursei by gene replacement, and the resulting mutant was shown to produce 10-deoxynystatin. Purification and an in vitro activity assay for 10-deoxynystatin demonstrated its antifungal activity being equal to that of nystatin. The NysL protein was expressed heterologously in Escherichia coli as a His-tagged protein and used in an enzyme assay with 10-deoxynystatin as a substrate. The results obtained clearly demonstrated that NysL is a hydroxylase responsible for the post-polyketide synthase modification of 10-deoxynystatin at position C-10. Kinetic studies with the purified recombinant enzyme allowed determination of K(m) and k(cat) and revealed no inhibition of recombinant NysL by either the substrate or the product. These studies open the possibility for in vitro evolution of NysL aimed at changing its specificity, thereby providing new opportunities for engineered biosynthesis of novel nystatin analogues hydroxylated at alternative positions of the macrolactone ring.