Previous studies showed that the Fe-II/alpha-ketoglutarate dependent dioxygenase AsqJ induces a skeletal rearrangement in viridicatin biosynthesis in Aspergillus nidulans, generating a quinolone scaffold from benzo[1,4]diazepine-2,5-dione substrates. We report that AsqJ catalyzes an additional, entirely different reaction, simply by a change in substituent in the benzodiazepinedione substrate. This new mechanism is established by substrate screening, application of functional probes, and computational analysis. AsqJ excises H2CO from the heterocyclic ring structure of suitable benzo[1,4]diazepine-2,5-dione substrates to generate quinazolinones. This novel AsqJ catalysis pathway is governed by a single substituent within the complex substrate. This unique substrate-directed reactivity of AsqJ enables the targeted biocatalytic generation of either quinolones or quinazolinones, two alkaloid frameworks of exceptional biomedical relevance.