Polyketides are one of the largest groups of natural products produced by bacteria, fungi, and plants. Many of these metabolites have highly complex chemical structures and very important biological activities, including antibiotic, anticancer, immunosuppressant, and anti-cholesterol activities. In the past two decades, extensive investigations have been carried out to understand the molecular mechanisms for polyketide biosynthesis. These efforts have led to the development of various rational approaches toward engineered biosynthesis of new polyketides. More recently, the research efforts have shifted to the elucidation of the three-dimentional structure of the complex enzyme machineries for polyketide biosynthesis and to the exploitation of new sources for polyketide production, such as filamentous fungi and marine microorganisms. This review summarizes our general understanding of the biosynthetic mechanisms and the progress in engineered biosynthesis of polyketides.