Type III polyketide synthases (PKSs) typically catalyze iterative elongation of acyl-CoA starter units with malonyl-CoA in plants, while bacterial Type III PKSs have been recently identified. Analysis of the Streptomyces coelicolor A3(2) genome uncovered three potential Type III PKS open reading frames (ORFs), two of which are not associated with known metabolites. Here we report that one of these ORFs (sco7221)-encoded PKS (Gcs) is essential for germicidin biosynthesis. We replaced sco7221 in S. coelicolor M145 with an in-frame scar sequence via PCR-targeting; comparative LC-ESIMS metabolic profiling showed the mutant lacked five metabolites (present in wild type), which were identified as germicidin A/B/C and novel isogermicidins A/B via high-resolution ESI-TOF-MS and NMR. Complementation with sco7221 restored metabolite production. Feeding experiments ([2H7]butyric acid, [U-13C]isoleucine) demonstrated germicidins are assembled from β-ketoacyl-ACP (fatty acid biosynthesis intermediates) as starter units and ethylmalonyl-CoA as extender units—unprecedented for Type III PKSs. Analysis of a fabH mutant (selective for acetyl-CoA) supported Gcs using β-ketoacyl-ACP over acyl-CoA starters. Heterologous expression of sco7221 in Streptomyces Venezuelae (lacking sco7221 orthologs) enabled germicidin production, confirming Gcs sufficiency. In conclusion, we identified a novel bacterial Type III PKS that catalyzes elongation of β-ketoacyl-ACP with ethyl/methylmalonyl-CoA for germicidin assembly, representing new substrate selectivity for Type III PKSs.