The pikromycin (Pik) polyketide synthase (PKS) from Streptomyces venezuelae comprises four multifunctional polypeptides (PikAI, PikAII, PikAIII, and PikAIV). This PKS can generate 12- and 14-membered ring macrolactones (10-deoxymethynolide and narbonolide, respectively) through the activity of its terminal modules (PikAIII and PikAIV). We performed a series of experiments involving the functional replacement of PikAIV in mutant strains with homodimeric and heterodimeric PikAIV modules to investigate the details of macrolactone ring size determination. The results suggest a new and surprising mechanism by which the penultimate hexaketide chain elongation intermediate is transferred from PikAIII ACP5 to PikAIV ACP6 before release by the terminal thioesterase domain. Elucidation of this chain transfer mechanism provides important new details about alternative macrolactone ring size formation in modular PKSs and contributes to the potential for rational design of structural diversity by combinatorial biosynthesis.