A fungal C4-alkylated dihydroisocoumarin pathway was discovered and elucidated. This pathway includes the following (1) a nonreducing polyketide synthase and a P450 collaboratively synthesize hydroxylated C3-methylated isocoumarin 3; (2) a methyltransferase methylates 3 to 8; and (3) importantly, an esterase specifically catalyzes a ring reconstruction process of 8 to C4-alkylated dihydroisocoumarin 10. Our discovery fills the gap in the enzymatic transformation process of natural C4-alkylated isocoumarin derivates.