GilR is a recently identified oxidoreductase that catalyzes the terminal step of gilvocarcin V biosynthesis and is a unique enzyme that establishes the lactone core of the polyketide-derived gilvocarcin chromophore. Gilvocarcin-type compounds form a small distinct family of anticancer agents that are involved in both photo-activated DNA-alkylation and histone H3 cross-linking. High resolution crystal structures of apoGilR and GilR in complex with its substrate pregilvocarcin V reveals that GilR belongs to the small group of a relatively new type of the vanillyl-alcohol oxidase flavoprotein family characterized by bicovalently tethered cofactors. GilR was found as a dimer, with the bicovalently attached FAD cofactor mediated through His-65 and Cys-125. Subsequent mutagenesis and functional assays indicate that Tyr-445 may be involved in reaction catalysis and in mediating the covalent attachment of FAD, whereas Tyr-448 serves as an essential residue initiating the catalysis by swinging away from the active site to accommodate binding of the 6R-configured substrate and consequently abstracting the proton of the hydroxyl residue of the substrate hemiacetal 6-OH group. These studies lay the groundwork for future enzyme engineering to broaden the substrate specificity of this bottleneck enzyme of the gilvocarcin biosynthetic pathway for the development of novel anti-cancer therapeutics.