Spirobisnaphthalenes (SBNs) are a class of highly oxygenated, fungal bisnaphthalenes containing an unique spiroketal bridge, that displayed diverse bioactivities. Among the reported SBNs, palmarumycins are the major type, which are precursors for the other type of SBNs structurally. However, the biosynthesis of SBNs is unclear. In this study, we elucidated the biosynthesis of palmarumycins, using gene disruption, heterologous expression, and substrate feeding experiments. The biosynthetic gene cluster for palmarumycins was identified to be distant from the polyketide synthase gene cluster, and included two cytochrome P450s (PalA and PalB), and one short chain dehydrogenase/reductase (PalC) encoding genes as key structural genes. PalA is an unusual, multifunctional P450 that catalyzes the oxidative dimerization of 1,8‐dihydroxynaphthalene to generate the spiroketal linkage and 2,3‐epoxy group. Chemical synthesis of key intermediate and in vitro biochemical assays proved that the oxidative dimerization proceeded via a binaphthyl ether. PalB installs the C‐5 hydroxyl group, widely found in SBNs. PalC catalyzes 1‐keto reduction, the reverse 1‐dehydrogenation, and 2,3‐epoxide reduction. Moreover, an FAD‐dependent oxidoreductase, encoded by palD, which locates outside the cluster, functions as 1‐dehydrogenase. These results provided the first genetic and biochemical evidence for the biosynthesis of palmarumycin SBNs.