Diketopiperazines (DKPs) make up a large group of natural products with diverse structures and biological activities. Bicyclomycin is a broad-spectrum DKP antibiotic with unique structure and function: it contains a highly oxidized bicyclic [4.2.2] ring and is the only known selective inhibitor of the bacterial transcription termination factor, Rho. Here, we identify the biosynthetic gene cluster for bicyclomycin containing six iron-dependent oxidases. We demonstrate that the DKP core is made by a tRNA-dependent cyclodipeptide synthase, and hydroxylations on two unactivated sp(3) carbons are performed by two mononuclear iron, a-ketoglutarate-dependent hydroxylases. Using bioinformatics, we also identify a homologous gene cluster prevalent in a human pathogen Pseudomonas aeruginosa. We detect bicyclomycin by overexpressing this gene cluster and establish P. aeruginosa as a new producer of bicyclomycin. Our work uncovers the biosynthetic pathway for bicyclomycin and sheds light on the intriguing oxidation chemistry that converts a simple DKP into a powerful antibiotic.