Type II polyketide synthases (PKSs) are a family of multienzyme systems that catalyze the biosynthesis of polyfunctional aromatic natural products such as actinorhodin, frenolicin, tetracenomycin, and doxorubicin. A central component in each of these systems is the beta-ketoacyl synthase-chain length factor (KS-CLF) heterodimer. In the presence of an acyl carrier protein (ACP) and a malonyl-CoA:ACP malonyl transferase (MAT), this enzyme synthesizes a polyketide chain of defined length from malonyl-CoA. We have investigated the role of the actinorhodin KS-CLF in priming, elongation, and termination of its octaketide product by subjecting the wild-type enzyme and selected mutants to assays that probe key steps in the overall catalytic cycle. Under conditions reflecting steady-state turnover of the PKS, a unique acyl-ACP intermediate is detected that carries a long, possibly full-length, acyl chain. This species cannot be synthesized by the C169S, H309A, K341A, and H346A mutants of the KS, all of which are blocked in early steps in the PKS catalytic cycle. These four residues are universally conserved in all known KSs. Malonyl-ACP alone is sufficient for kinetically and stoichiometrically efficient synthesis of polyketides by the wild-type KS-CLF, but not by heterodimers that carry the mutations listed above. Among these mutants, C169S is an efficient decarboxylase of malonyl-ACP, but the H309A, K341A, and H346A mutants are unable to catalyze decarboxylation. Transfer of label from [(14)C]malonyl-ACP to the nucleophile at position 169 in the KS can be detected for the wild-type enzyme and for the C169S and K341A mutants, but not for the H309A mutant and only very weakly for the H346A mutant. A model is proposed for decarboxylative priming and extension of a polyketide chain by the KS, where C169 and H346 form a catalytic dyad for acyl chain attachment, H309 positions the malonyl-ACP in the active site and supports carbanion formation by interacting with the thioester carbonyl, and K341 enhances the rate of malonyl-ACP decarboxylation via electrostatic interaction. Our data also suggest that the ACP and the KS dissociate after each C-C bond forming event, and that the newly extended acyl chain is transferred back from the ACP pantetheine to the KS cysteine before dissociation can occur. Chain termination is most likely the rate-limiting step in polyketide biosynthesis. Within the act CLF, neither the universally conserved S145 residue nor Q171, which aligns with the active site cysteine of the ketosynthase, is essential for PKS activity. The results described here provide a basis for a better understanding of the catalytic cycle of type II PKSs and fatty acid synthases.