Chain elongation and cyclization of precursors of dihydroxyphenylacetyl-CoA (DPA-CoA) catalyzed by the bacterial type III polyketide synthase DpgA were studied. Two labile intermediates, di- and tri-ketidyl-CoA (DK- and TK-CoA), were proposed and chemically synthesized. In the presence of DpgABD, each of these with [13C3]malonyl-CoA (MA-CoA) was able to form partially 13C-enriched DPA-CoA. By NMR and MS analysis, the distribution of 13C atoms in the partially 13C-enriched DPA-CoA shed light on how the polyketide chain elongates and cyclizes in the DpgA-catalyzed reaction. Polyketone intermediates elongate in a manner different from that which had been believed: two molecules of DK-CoA, or one DK-CoA plus one acetoacetyl-CoA (AA-CoA), but not two molecules of AA-CoA can form one molecule of DPA-CoA. As a result, polyketidyl-CoA serves as both the starter and extender, whereas polyketone-CoA without the terminal carboxyl group can only act as an extender. The terminal carboxyl group is crucial for the cyclization that likely takes place on CoA.