Loline alkaloids, found in many grass-Epichloë symbiota, are toxic or feeding deterrent to invertebrates. The loline alkaloids all share a saturated pyrrolizidine ring with a 1-amine group and an ether bridge linking C2 and C7. The steps in biosynthesis of loline alkaloids are catalyzed by enzymes encoded by a gene cluster, designated LOL, in the Epichloë genome. This dissertation addresses the enzymatic, genetic and evolutionary basis for diversification of these alkaloids, focusing on ether bridge formation and the subsequent modifications of the 1-amine to form different loline alkaloids. Through gene complementation of a natural lolO mutant and comparison of LOL clusters in strains with different loline alkaloid profiles, I found that lolO, predicted to encode a 2-oxoglutarate-dependent nonheme iron (2OG/Fe) dioxygenase, is required in formation of the ether bridge. Through application of isotopically labeled compound to Epichloë uncinata culture, I established that exo-1-acetamidopyrrolizidine (AcAP) and N-acetylnorloline (NANL) are true pathway intermediates. Application of AcAP to yeast expressing lolO resulted in production of NANL, establishing that LolO is sufficient to catalyze this unusual oxygenation reaction. After ether formation, modifications on the 1-amino group give loline, N-methylloline (NML), N-formylloline (NFL) and N-acetylloline (NAL). A double knockout of lolN, predicted to encode an acetamidase, and lolM, predicted to encode a methyltransferase, produced only NANL. Complementation of the double knockout with wild-type lolN and lolM restored the loline alkaloid profile. These results indicate that LolN is involved in deacetylating NANL to produce norloline, which is then modified to form the other lolines. Crude protein extract of a yeast transformant expressing LolM converted norloline to loline and NML, and loline to NML, supporting the hypothesis that LolM functions as a methyltransferase in the loline-alkaloid biosynthesis pathway. The alkaloid NAL was observed in some but not all plants symbiotic with Epichloë siegelii, and when provided with exogenous loline, asymbiotic meadow fescue (Lolium pratense) plants produced N-acetylloline (NAL), indicating that a plant acetyltransferase converts loline to NAL. I further analyzed the basis for loline alkaloid diversity by comparing the LOL clusters in the Epichloë and Atkinsonella species with different loline alkaloid profiles, and found that LOL clusters changed position, orientation and gene content over their evolutionary history. Frequent, independent losses of some or all late pathway genes, lolO, lolN, lolM and lolP, resulted in diverse loline alkaloid profiles. In addition, phylogenetic analyses demonstrated transspecies polymorphism of the LOL clusters. Based on my findings, I established that in Epichloë and Atkinsonella species the ether bridge is formed on acetamidopyrrolizidine. My study of the loline alkaloid profile of Adenocarpus decorticans (Fabaceae) suggests that these plants probably use a similar strategy at least with respect to ether-bridge formation. Further diversification steps of loline alkaloids in grass-Clavicipitaceae symbiota are carried out by enzymes of both Epichloë species and the host plant. Finally, I present evidence that LOL clusters have evolved by balancing selection for chemical diversity.