The thioesterase (TE) domain of the methymycin/picromycin synthase (PICS) was functionally expressed in Escherichia coli, and the optimal N-terminal boundary of the recombinant TE was determined. A series of diketide-N-acetylcysteamine (SNAC) thioesters were tested as substrates. PICS TE showed a strong preference for the 2-methyl-3-ketopentanoyl-SNAC substrate 5 over the stereoisomers of the reduced diketides 1-4, with an similar to1.6:1 preference for the (2R,3S)-2-methyl-3-hydroxy diastereomer 2 over the (2S,3R)-diketide 1. The closely related DEBS TE, the thioesterase from the 6-deoxyerythronolide B synthase, showed a more marked 4.4:1 preference for 2 over 1, with only a slightly greater preference for the 3-ketoacyl-SNAC substrate 5. The roles of several active site residues in PICS TE were examined by site-directed mutagenesis. Serine 148, which is part of the apparent catalytic triad consisting of S148, H268, and D176, was found to be essential for thioesterase activity, while replacement of D176 with asparagine (D176N) gave a mutant thioesterase that retained substantial, albeit reduced, hydrolytic activity toward diketide-SNAC substrates. Mutation of E187 and 8191, each of which is thought to play a role in substrate binding, had only minor effects on the relative specificity for diketide substrates 1, 2, and 5. Finally, when PICS TE was fused to the C-terminus of DEBS module 3, the resultant chimeric protein converted diketide 1 with methylmalonyl-CoA to triketide ketolactone 6 with improved catalytic efficiency compared to that of the previously developed DEBS module 3-(DEBS)TE construct.