The d-amino acid residues are hallmark building blocks of nonribosomal peptides. Here, we report the bifunctional thioesterase domain (TE domain) Skyxy-TE that catalyzes both epimerization and cyclization in skyllamycin biosynthesis. Skyxy-TE specifically catalyzes the epimerization of the C-terminal l-amino acid residue of the linear substrate, then catalyzes regioselective intramolecular cyclization. The crystal structure of Skyxy-TE was solved at 2.25 Å and site-directed mutagenesis was performed, revealing key residues involved in the epimerization and cyclization. This study expands the understanding of the versatile TE domains and facilitates chemoenzymatic synthesis or combinatorial biosynthesis in the future.