Addition or removal of hydroxyl groups modulates the activity of many pharmacologically active biomolecules. It can be integral to the basic biosynthetic factory or result from associated tailoring steps. For the anti-MRSA antibiotic mupirocin, removal of a C8-hydroxy group late in the biosynthetic pathway gives the active pseudomonic acid A. An extra hydroxylation, at C4, occurs in the related but more potent antibiotic thiomarinol A. We report here in vivo and in vitro studies that show putative non-heme-iron(II)/α-ketoglutarate-dependent dioxygenase TmuB, from the thiomarinol cluster, 4-hydroxylates various pseudomonic acids while C8-OH, and other substituents around the pyran ring, block enzyme action but not substrate binding. Molecular modelling suggested a basis for selectivity but mutational studies showed limited ability to rationally modify TmuB substrate specificity. 4-hydroxylation had opposite effects on the potency of mupirocin and thiomarinol. Thus TmuB can be added to the toolbox of polyketide tailoring technologies for in vivo generation of new antibiotics in the future.