Oxepinone rings represent one of structurally unusual motifs of natural products and the biosynthesis of oxepinones is not fully understood. 1,5-Seco-vibralactone (3) features an oxepinone motif and is a stable metabolite isolated from mycelial cultures of the mushroomBoreostereum vibrans. Cyclization of3forms vibralactone (1) whose β-lactone-fused bicyclic core originates from 4-hydroxybenzoate, yet it remains elusive how 4-hydroxybenzoate is converted to3especially for the oxepinone ring construction in the biosynthesis of1. In this work, using activity-guided fractionation together with proteomic analyses, we identify an NADPH/FAD-dependent monooxygenase VibO as the key enzyme performing a crucial ring-expansive oxygenation on the phenol ring to generate the oxepin-2-one structure of3. The crystal structure of VibO reveals that it forms a dimeric phenol hydroxylase-like architecture featured with a unique substrate-binding pocket adjacent to the bound FAD. Computational modeling and solution studies provide insight into the likely VibO active site geometry, and suggest possible involvement of a flavin-C4a-OO(H) intermediate.