Pneumocandins are lipohexapeptides of the echinocandin family that inhibit fungal 1,3-β-glucan synthase. Most of the pathway steps have been identified previously. However, the lipoinitiation reaction has not yet been experimentally verified. Herein, we investigate the lipoinitiation step of pneumocandin biosynthesis in Glarea lozoyensis and demonstrate that the gene product, GLligase, catalyzes this step. Disruption of GLHYD, a gene encoding a putative type II thioesterase and sitting upstream of the pneumocandin acyl side chain synthase gene, GLPKS4, revealed that GLHYD was necessary for optimal function of GLPKS4 and to attain normal levels of pneumocandin production. Double disruption of GLHYD and GLPKS4 did not affect residual function of the GLligase or GLNRPS4. Mutasynthesis experiments with a gene disruption mutant of GLPKS4 afforded us an opportunity to test the substrate specificity of GLligase in the absence of its native polyketide side chain to diversify pneumocandins with substituted side chains. Feeding alternative side chain precursors yielded acrophiarin and four new pneumocandin congeners with straight C14, C15, and C16 side chains. A comprehensive biological evaluation showed that one compound, pneumocandin I (5), has elevated antifungal activity and similar hemolytic activity compared to pneumocandin B0, the starting molecule for caspofungin. This study demonstrates that the lipoinitiation mechanism in pneumocandin biosynthesis involves interaction among a highly reducing PKS, a putative type II thioesterase, and an acyl AMP-ligase. A comparison of the SAR among pneumocandins with different-length acyl side chains demonstrated the potential for using GLligase for future engineering of new echinocandin analogues.