Actinorhodin (ACT) produced by Streptomyces coelicolor A3(2) is an aromatic polyketide antibiotic, whose basic carbon skeleton is derived from type II polyketide synthase (PKS). Although an acyl carrier protein (ACP) serves as an anchor of nascent intermediates during chain elongation in the type II PKS complex, it generally remains unknown when an ACP-free intermediate is released from the complex to post-PKS modification (“tailoring”) steps. In ACT biosynthesis, a stereospecific ketoreductase (RED1) encoded by actVI-ORF1 reduces the 3β-keto group of a proposed bicyclic intermediate to an (S) secondary alcohol. The bicyclic intermediate is formed from the steps of PKS and its closely associated enzymes and lies at the interface toward ACT-tailoring steps. To clarify whether RED1 recognizes the ACP-bound bicyclic intermediate or the ACP-free bicyclic intermediate, recombinant RED1 was purified for enzymatic characterization. RED1 was heterologously expressed in Escherichia coli and purified using Ni-chelate and gel filtration column chromatographies to homogeneity in soluble form. Enzymatic studies in vitro on RED1 with synthetic analogues, in place of an unstable bicyclic intermediate, showed that RED1 recognizes 3-oxo-4-naphthylbutyric acid (ONBA) as a preferred substrate and not its N-acetylcysteamine thioester. This strongly suggests that RED1 recognizes ACP-free bicyclic β-keto acid as the first committed intermediate of tailoring steps. Kinetic studies of RED1 showed high affinity with ONBA, consistent with the requirement for an efficient reduction of a labile β-keto carboxylic acid. Interestingly, the methyl ester of ONBA acted as a competitive inhibitor of RED1, indicating the presence of strict substrate recognition toward the terminal acid functionality.