The ultimate step in the formation of thebaine, a pentacyclic opiate alkaloid readily converted to the narcotic analgesics codeine and morphine in the opium poppy, has long been presumed to be a spontaneous reaction. We have detected and purified a novel enzyme from opium poppy latex that is capable of the efficient formation of thebaine from (7S)-salutaridinol 7-O-acetate at the expense of labile hydroxylated byproducts, which are preferentially produced by spontaneous allylic elimination. Remarkably, thebaine synthase (THS), a member of the pathogenesis-related 10 protein (PR10) superfamily, is encoded within a novel gene cluster in the opium poppy genome that also includes genes encoding the four biosynthetic enzymes immediately upstream. THS is a missing component that is crucial to the development of fermentation-based opiate production and dramatically improves thebaine yield in engineered yeast.