The lolines are a class of bioprotective alkaloids that are produced by Epichloë species, fungal endophytes of grasses. These alkaloids are saturated 1-aminopyrrolizidines with a C2 to C7 ether bridge, and are structurally differentiated by the various modifications of the 1-amino group: -NH2 (norloline), -NHCH3 (loline), -N(CH3)2 (N-methylloline), -N(CH3)Ac (N-acetylloline), -NHAc (N-acetylnorloline), and -N(CH3)CHO (N-formylloline). Other than the LolP cytochrome P450, which is required for conversion of N-methylloline to N-formylloline, the enzymatic steps for loline diversification have not yet been established. Through isotopic labeling, we determined that N-acetylnorloline is the first fully cyclized loline alkaloid, implying that deacetylation, methylation, and acetylation steps are all involved in loline alkaloid diversification. Two genes of the loline alkaloid biosynthesis (LOL) gene cluster, lolN and lolM, were predicted to encode an N-acetamidase (deacetylase) and a methyltransferase, respectively. A knockout strain lacking both lolN and lolM stopped the biosynthesis at N-acetylnorloline, and complementation with the two wild-type genes restored production of N-formylloline and N-acetylloline. These results indicated that lolN and lolM are required in the steps from N-acetylnorloline to other lolines. The function of LolM as an N-methyltransferase was confirmed by its heterologous expression in yeast resulting in conversion of norloline to loline, and of loline to N-methylloline. One of the more abundant lolines, N-acetylloline, was observed in some but not all plants with symbiotic Epichloë siegelii, and when provided with exogenous loline, asymbiotic meadow fescue (Lolium pratense) plants produced N-acetylloline, suggesting that a plant acetyltransferase catalyzes N-acetylloline formation. We conclude that although most loline alkaloid biosynthesis reactions are catalyzed by fungal enzymes, both fungal and plant enzymes are responsible for the chemical diversification steps in symbio.