Fungal indole prenyltransferases (PTs) typically act on specific substrates, and they are able to prenylate their target compounds with remarkably high regio- and stereoselectivity. Similar to several indole PTs characterized to date, the cyclic dipeptide N-prenyltransferase (CdpNPT) is able to prenylate a range of diverse substrates, thus exhibiting an unusually broad substrate promiscuity. To define the structural basis for this promiscuity, we have determined crystal structures of unliganded CdpNPT and of a ternary complex of CdpNPT bound to (S)-benzodiazepinedione and thiolodiphosphate. Analysis of the structures reveals a limited number of specific interactions with (S)-benzodiazepinedione, which projects into a largely hydrophobic surface. This surface can also accommodate other substrates, explaining the ability of the enzyme to prenylate a range of compounds. The location of the bound substrates suggests a likely reaction mechanism for the conversion of (S)-benzodiazepinedione. Structure-guided mutagenesis experiments confirm that, in addition to (S)-benzodiazepinedione, CdpNPT can also act on (R)-benzodiazepinedione and several cyclic dipeptides, albeit with relaxed specificity. Finally, nuclear magnetic resonance spectroscopy demonstrates that CdpNPT is a C-3 reverse PT that catalyzes the formation of C-3β prenylated indolines from diketopiperazines of tryptophan-containing cyclic dipeptides.