In Escherichia coli colonies, patterns of differential gene expression can be visualized by the use of Mu d(lac) fusion elements. Here we report that patterned beta-galactosidase expression in colonies of strain MS1534 resulted from a novel mechanism, spatially localized replication of the Mu dII1681 element causing lacZ transposition to active expression sites. Mu dII1681 replication did not occur constitutively with a fixed probability but was dependent on the growth history of the bacterial population. The bacteria in which Mu dII1681 replication and lacZ transposition had occurred could no longer form colonies. These results lead to several interesting conclusions about cellular differentiation during colony development and the influence of bacterial growth history on gene expression and genetic change.