Type II polyketide synthases are involved in the biosynthesis of numerous clinically relevant secondary metabolites with potent antibiotic or anticancer activity. Until recently the only known producers of type II PKSs were members of the Gram-positive actimomycetes, well-known producers of secondary metabolites in general. Here we present the second example of a type II PKS from Gram-negative bacteria. We have identified the biosynthesis gene cluster responsible for the production of anthraquinones (AQs) from the entomopathogenic bacterium Photorhabdus luminescens. This is the first example of AQ production in Gram-negative bacteria, and their heptaketide origin was confirmed by feeding experiments. Deletion of a cyclase/aromatase involved in AQ biosynthesis resulted in accumulation of mutactin and dehydromutactin, which have been described as shunt products of typical octaketide compounds from streptomycetes, and a pathway for AQ formation from octaketide intermediates is discussed.