Terpene synthases (TPSs) and trans-isoprenyl diphosphate synthases (IDSs) are among the core enzymes for creating the enormous diversity of terpenoids. Despite having no sequence homology, TPSs and IDSs share a conserved “α terpenoid synthase fold” and a trinuclear metal cluster for catalysis, implying a common ancestry with TPSs hypothesized to evolve from IDSs anciently. Here we report on the identification and functional characterization of novel IDS-like TPSs (ILTPSs) in fungi that evolved from IDS relatively recently, indicating recurrent evolution of TPSs from IDSs. Through large-scale bioinformatic analyses of fungal IDSs, putative ILTPSs that belong to the geranylgeranyl diphosphate synthase (GGDPS) family of IDSs were identified in three species of Melampsora. Among the GGDPS family of the two Melampsora species experimentally characterized, one enzyme was verified to be bona fide GGDPS and all others were demonstrated to function as TPSs. Melampsora ILTPSs displayed kinetic parameters similar to those of classic TPSs. Key residues underlying the determination of GGDPS versus ILTPS activity and functional divergence of ILTPSs were identified. Phylogenetic analysis implies a recent origination of these ILTPSs from a GGDPS progenitor in fungi, after the split of Melampsora from other genera within the class of Pucciniomycetes. For the poplar leaf rust fungus Melampsora larici-populina, the transcripts of its ILTPS genes were detected in infected poplar leaves, suggesting possible involvement of these recently evolved ILTPS genes in the infection process. This study reveals the recurrent evolution of TPSs from IDSs since their ancient occurrence and points to the possibility of a wide distribution of ILTPS genes in three domains of life.