The [1,2]-Meisenheimer rearrangement is well known as the [1,2]-migration of an O-substituted hydroxylamine from a tertiary amine N-oxide, and it is frequently employed in organic synthesis to enforce adjacent carbon oxidation or install a 1,2-oxazine core, which is a prevalent structural feature and pharmacophore of many bioactive natural products. Although the [1,2]-Meisenheimer rearrangement was proposed to occur in the biosynthesis of a number of 1,2-oxazine-containing natural products, it has never been proved biosynthetically. Here, we identified the biosynthetic gene cluster of an insecticidal natural product, paeciloxazine (1), from Penicillium janthinellum and characterized a flavin-dependent monooxygenase, PaxA, as the first example that mediates the formation of a 1,2-oxazine moiety via Meisenheimer rearrangement. In vitro biochemical assays, site-directed mutations, docking and molecular dynamics simulations, and density functional theory calculations support the mechanism that PaxA first catalyzes N-oxidation to form an N-oxide intermediate, which undergoes [1,2]-Meisenheimer rearrangement with the assistance of an amino acid with proton transfer property. This study expands the repertoire of rearrangement reactions during the biosynthesis of natural products and provides a new strategy for discovering natural products with N-O tethers by genome mining.