Type III polyketide synthases (PKSs) found in plants, fungi, and bacteria synthesize a variety of aromatic polyketides. A Gram-positive, filamentous bacterium Streptomyces griseus contained an srs operon, in which srsA encoded a type III PKS, srsB encoded a methyltransferase, and srsC encoded a flavoprotein hydroxylase. Consistent with this annotation, overexpression of the srs genes in a heterologous host, Streptomyces lividans, showed that SrsA was a type III PKS responsible for synthesis of phenolic lipids, alkylresorcinols, and alkylpyrones, SrsB was a methyltransferase acting on the phenolic lipids to yield alkylresorcinol methyl ethers, and SrsC was a hydroxylase acting on the alkylresorcinol methyl ethers. In vitro SrsA reaction showed that SrsA synthesized alkylresorcinols from acyl-CoAs of various chain lengths as a starter substrate, one molecule of methylmalonyl-CoA, and two molecules of malonyl-CoA. SrsA was thus unique in that it incorporated the extender substrates in a strictly controlled order of malonyl-CoA, malonyl-CoA, and methylmalonyl-CoA to produce alkylresorcinols. An srsA mutant, which produced no phenolic lipids, was highly sensitive to beta-lactam antibiotics, such as penicillin G and cephalexin. Together with the fact that the alkylresorcinols were fractionated mainly in the cell wall fraction, this observation suggests that the phenolic lipids, perhaps associated with the cytoplasmic membrane because of their amphiphilic property, affect the characteristic and rigidity of the cytoplasmic membrane/peptidoglycan of a variety of bacteria. An srs-like operon is found widely among Gram-positive and -negative bacteria, indicating wide distribution of the phenolic lipids.