Five contiguous genes in the rapamycin gene cluster, rapQONML, of Streptomyces hygroscopicus ATCC29253 were replaced with a neomycin resistance marker by double homologous recombination. The resulting strain, if fed pipecolate, produced the analog 16-O-desmethyl-27-desmethoxyrapamycin instead of rapamycin. This indicates that the P450 hydroxylase encoded by rapN is specific for C-27, and that the O-methyltransferases encoded by rapQ and rapM methylate the hydroxyl groups on C-16 and C-27. By inference, the remaining P450 hydroxylase and methyltransferase genes (rapI and rapJ) are responsible for hydroxylation of C-9 and methylation of the C-39 hydroxyl, consistent with their homology to fkbD and fkbM, respectively, in the FK506 cluster. The relatively high level of 16-O-desmethyl-27-desmethoxyrapamycin produced indicates that the reactions at C-9 and C-39 do not require previous modification of the macrolactone precursor at either C-16 or C-27.