Previous studies showed that the Fe^II/α-ketoglutarate dependent dioxygenase AsqJ induces a skeletal rearrangement in viridicatin biosynthesis in Aspergillus nidulans, generating a quinolone scaffold from benzo[1,4]diazepine-2,5-dione substrates. We report that AsqJ catalyzes an additional, entirely different reaction, simply by a change in substituent in the benzodiazepinedione substrate. This new mechanism is established by substrate screening, application of functional probes, and computational analysis. AsqJ excises H₂CO from the heterocyclic ring structure of suitable benzo[1,4]diazepine-2,5-dione substrates to generate quinazolinones. This novel AsqJ catalysis pathway is governed by a single substituent within the complex substrate. This unique substrate-directed reactivity of AsqJ enables the targeted biocatalytic generation of either quinolones or quinazolinones, two alkaloid frameworks of exceptional biomedical relevance.