Peptide backbone N-methylation, as seen in cyclosporin A, has been considered to be exclusive to nonribosomal peptides. We have identified the first post-translationally modified peptide or protein harboring internal α-N-methylations through discovery of the genetic locus for the omphalotins, cyclic N-methylated peptides produced by the fungus Omphalotus olearius. We show that iterative autocatalytic activity of an N-methyltransferase fused to its peptide substrate is the signature of a new family of ribosomally encoded metabolites.