Acarbose, a pseudotetrasaccharide produced by several strains of Actinoplanes and Streptomyces, is an α-glucosidase inhibitor clinically used to control type II diabetes. Bioinformatic analysis of the biosynthetic gene clusters of acarbose in Actinoplanes sp. SE50/110 (the acb cluster) and Streptomyces glaucescens GLA.O (the gac cluster) revealed their distinct genetic organizations and presumably biosynthetic pathways. However, to date, only the acarbose pathway in the SE50/110 strain has been extensively studied. Here, we report that GacI, one of the proteins that appear to be different between the two pathways, is a bifunctional glycosyltransferase family 5 (GT5)-phosphatase (PP) enzyme that functions at two different steps in acarbose biosynthesis in S. glaucescens GLA.O. In the acb pathway, the GT and the PP reactions are performed by two different enzymes. Truncated GacI proteins having only the GT or the PP domain showed comparable catalytic activity with the full-length GacI, indicating that domain separation does not significantly affect their respective catalytic activity. GacI, which is widely distributed in many Streptomyces, represents the first example of naturally occurring GT5-PP bifunctional enzymes biochemically characterized.