Compounds of polyketide origin possess a wealth of pharmacological effects, including antibacterial, antifungal, antiparasitic, anticancer and immunosuppressive activities. Many of these compounds and their semi-synthetic derivatives are used today in the clinic. The first complete gene cluster encoding the polyketide antibiotic actinorhodin was cloned twenty years ago. The erythromycin gene cluster followed in 1990, and since then most of the gene clusters encoding commercially important drugs have also been cloned, sequenced and their biosynthetic mechanisms studied in great detail. Recent advances in the area of biosynthetic engineering of the enzymes involved in polyketide biosynthesis are presented in this review. The biosynthesis of a typical polyketide can be divided into three separate steps, including (i) choice of starter unit, (ii) the choice of extender units and the degree of beta-keto group reduction, and (iii) post-PKS tailoring of the basic polyketide backbone. Each of these steps represents a potential opportunity for the introduction of structural modification. The technologies to achieve this have now been highly developed and transferred into the industrial arena. The power of biosynthetic engineering will be exemplified by manipulations carried out on the erythromycin and the rapamycin biosynthetic gene clusters.