Benzalacetone synthase from Rheum palmatum efficiently catalyzed condensation of N-methylanthraniloyl-CoA (or anthraniloyl-CoA) with malonyl-CoA (or methylmalonyl-CoA) to produce 4-hydroxy-2(1H)-quinolones, a novel alkaloidal scaffold produced by a type III polyketide synthase (PKS). Manipulation of the functionally divergent type III PKSs by a nonphysiological substrate thus provides an efficient method for production of pharmaceutically important quinolone alkaloids.