Thiolactomycin (1), which features a unique γ-thiolactone ring, is a promising antibiotic candidate that specifically targets bacterial type II fatty acid synthase. Despite extensive studies on its pharmacological activities, modes of action, and chemical synthesis, the enzymatic processes responsible for forming the activity-determining γ-thiolactone ring have remained largely unknown. Here, we resolve this problem by revealing that the condensation and heterocyclization (Cy) domain of the nonribosomal peptide synthetase (NRPS) TlnC (TlnCCy), along with the cytochrome P450 enzyme TlnA, cooperatively enable the γ-thiolactone assembly. TlnCCy mediates an unusual sulfurtransfer reaction to sulfurate the polyketide intermediate, generating a thiocarboxylate intermediate. Subsequently, TlnA acts as a γ-thiolactone synthase, converting the linear thiocarboxylate intermediate into 1 via a distal radical-based cyclization mechanism. These findings not only expand the functional and catalytic repertoires of NRPS Cy domains and P450 enzymes but also highlight a special enzymatic strategy for γ-thiolactone biosynthesis in nature.