Rosemary (Rosmarinus officinalis) produces the phenolic diterpenes carnosic acid and carnosol, which, in addition to their general antioxidant activities, have recently been suggested as potential ingredients for the prevention and treatment of neurodegenerative diseases. Little is known about the biosynthesis of these diterpenes. Here we show that the biosynthesis of phenolic diterpenes in rosemary predominantly takes place in the glandular trichomes of young leaves, and used this feature to identify the first committed steps. Thus, a copalyl diphosphate synthase (RoCPS1) and two kaurene synthase-like (RoKSL1 and RoKSL2) encoding genes were identified and characterized. Expression in yeast (Saccharomyces cerevisiae) and Nicotiana benthamiana demonstrate that RoCPS1 converts geranylgeranyl diphosphate (GGDP) to copalyl diphosphate (CDP) of normal stereochemistry and that both RoKSL1 and RoKSL2 use normal CDP to produce an abietane diterpene. Comparison to the already characterized diterpene synthase from Salvia miltiorrhiza (SmKSL) demonstrates that the product of RoKSL1 and RoKSL2 is miltiradiene. Expression analysis supports a major contributing role for RoKSL2. Like SmKSL and the sclareol synthase from Salvia sclarea, RoKSL1/2 are diterpene synthases of the TPS-e group which have lost the internal gamma-domain. Furthermore, phylogenetic analysis indicates that RoKSL1 and RoKSL2 belong to a distinct group of KSL enzymes involved in specialized metabolism which most likely emerged before the dicot-monocot split.