Neomycins are a group of aminoglycoside antibiotics with both clinical and agricultural applications. To elucidate the regulatory mechanism of neomycin biosynthesis, we completed draft genome sequencing of a neomycin producer Streptomyces fradiae CGMCC 4.7387 from marine sediments, and the neomycin biosynthesis gene cluster was identified. Inactivation of the afsA-g gene encoding a γ-butyrolactone (GBL) synthase in S. fradiae CGMCC 4.7387 resulted in a significant decrease of neomycin production. Quantitative RT-PCR analysis revealed that the transcriptional level of neoR and the aphA-neoGH operon were reduced in the afsA-g::aac(3)IV mutant. Interestingly, a conserved binding site of AdpA, a key activator in the GBL regulatory cascade, was discovered upstream of neoR, a putative regulatory gene encoding a protein with an ATPase domain and a tetratricopeptide repeat domain. When neoR was inactivated, the neomycin production was reduced about 40% in comparison with the WT strain. Quantitative RT-PCR analysis revealed that the transcriptional levels of genes in the aphA-neoGH operon were reduced clearly in the neoR::aac(3)IV mutant. Finally, the titers of neomycin were improved considerably by overexpression of afsA-g and neoR in S. fradiae CGMCC 4.7387.