The antigen 43 surface protein of Escherichia coli is expressed in a phase-variable manner by a mechanism involving alternative activation and repression of transcription of the agn43 gene. The repressor is the OxyR DNA-binding protein, and its binding site was found to be located downstream of the agn43 transcription start site in a region of DNA that encompasses three 5'-GATC-3' sequences that are subject to Dam-mediated DNA methylation. It has been suggested previously that the phase-variable expression of antigen 43 results from a competition between Dam methylase and the OxyR repressor for these sites. The 5'-GATC-3' sequences were inactivated for methylation by site-directed mutagenesis, and all possible combinations of inactive and active sites were assessed for effects on phase-variable expression of the agn43 gene. Inactivation of any 5'-GATC-3' site individually had no effect; at least two sites had to be inactivated to disrupt the normal pattern of expression. Studies of OxyR interaction with agn43 DNA showed that methylation of any two 5'-GATC-3' sites was necessary and sufficient to block binding of the repressor. It was also found that the adenines of the second and third 5'-GATC-3' sites are required for OxyR binding, demonstrating that the sites for Dam methylation and for repressor binding are intimately associated. This is consistent with a competition model in which Dam and OxyR share a preference for specific DNA sequences in the regulatory region of the agn43 gene.