Phase variation in bacteria is regulated by homologous recombination at a specific DNA site. This recombinational event causes the inversion of a 970-base-pair DNA sequence that includes the promoter necessary for transcription of a flagellar gene. The invertible segment is flanked by two sites that are necessary for the inversion and contains a gene (hin) whose product mediates the inversion event. The hin gene shows extensive homology with the TnpR gene carried on the Tn3 transposon. It is also homologous with the gin gene carried on bacteriophage mu. These relationships suggest that the phase variation system may have evolved by the association of a transposon with a resident gene and the subsequent specialization of these elements to regulate flagellar antigen expression.