It has been shown previously that phase variation of the outer membrane protein Antigen43 (Ag43) of Escherichia coli requires the DNA-methylating enzyme deoxyadenosine methyltransferase (Dam) and the global regulator OxyR. In this study, we analysed the regulation of the Ag43 encoding gene (agn) using isolates containing a fusion of the agn regulatory region to the reporter gene lacZ. Our results indicate that phase variation of Ag43 is regulated at the level of transcription. Repression of agn'-lacZ transcription required OxyR, whereas activation required Dam. The regulatory region of agn contains three GATC sequences, which are target sites for Dam-dependent methylation. In vivo, the methylation state of these GATC sequences correlated with the transcription state of agn'-lacZ. These GATC sequences were not protected from Dam-dependent methylation in an oxyR background, suggesting that OxyR binding results in Dam-dependent methylation protection in OFF cells. In vitro, both oxidized OxyR and OxyR(C199S), which is locked in the reduced conformation, bound to the agn regulatory region, but methylation of the three GATC sequences abrogated this binding. In vivo, OxyR(C199S) was sufficient to repress Ag43 transcription. Our data support a model in which OxyR-mediated repression of transcription is alleviated by methylation of three GATC sequences in its binding site. In addition, we show that, in an oxyR background, Dam was still required for full activation, suggesting that the model concerning the role of Dam in agn regulation is incomplete. These results show that Dam-dependent phase variation in E. coli is not limited to the previously identified regulatory system of the family of pap-like fimbrial operons.