Quinolone alkaloids, found abundantly in the roots of bael (Aegle marmelos), possess various biological activities and have recently gained attention as potential lead molecules for novel drug designing. Here, we report the characterization of a novel Type III polyketide synthase, quinolone synthase (QNS), from A. marmelos that is involved in the biosynthesis of quinolone alkaloid. Using homology-based structural modeling, we identify two crucial amino acid residues (Ser-132 and Ala-133) at the putative QNS active site. Substitution of Ser-132 to Thr and Ala-133 to Ser apparently constricted the active site cavity resulting in production of naringenin chalcone from p-coumaroyl-CoA. Measurement of steady-state kinetic parameters demonstrates that the catalytic efficiency of QNS was severalfold higher for larger acyl-coenzymeA substrates as compared with smaller precursors. Our mutagenic studies suggest that this protein might have evolved from an evolutionarily related member of chalcone synthase superfamily by mere substitution of two active site residues. The identification and characterization of QNS offers a promising target for gene manipulation studies toward the production of novel alkaloid scaffolds.