Chrysanthemyl diphosphate synthase (CDS) is the first pathway-specific enzyme in the biosynthesis of pyrethrins, the most widely used plant-derived pesticide. CDS catalyzes c1′-2-3 cyclopropanation reactions of two molecules of dimethylallyl diphosphate (DMAPP) to yield chrysanthemyl diphosphate (CPP). Three proteins are known to catalyze this cyclopropanation reaction of terpene precursors. Two of them, phytoene and squalene synthase, are bifunctional enzymes with both prenyltransferase and terpene synthase activity. CDS, the other member, has been reported to perform only the prenyltransferase step. Here we show that the NDXXD catalytic motif of CDS, under the lower substrate conditions prevalent in plants, also catalyzes the next step, converting CPP into chrysanthemol by hydrolyzing the diphosphate moiety. The enzymatic hydrolysis reaction followed conventional Michaelis-Menten kinetics, with a Km value for CPP of 196 μm. For the chrysanthemol synthase activity, DMAPP competed with CPP as substrate. The DMAPP concentration required for half-maximal activity to produce chrysanthemol was ∼100 μm, and significant substrate inhibition was observed at elevated DMAPP concentrations. The N-terminal peptide of CDS was identified as a plastid-targeting peptide. Transgenic tobacco plants overexpressing CDS emitted chrysanthemol at a rate of 0.12–0.16 μg h−1 g−1 fresh weight. We propose that CDS should be renamed a chrysanthemol synthase utilizing DMAPP as substrate.Chrysanthemyl diphosphate synthase (CDS) is known to catalyze the formation of the irregular terpenoid, chrysanthemyl diphosphate (CPP). CDS also catalyzes the next step from CPP to chrysanthemol. CDS is actually a chrysanthemol synthase (CHS) with bifunctional enzyme activity. Identification of CHS increases our understanding in terpene biosynthesis and paves the way for engineering biosynthesis of the most widely used natural pesticide, pyrethrins.