Expression of serogroup B meningococcal capsular polysaccharide is subject to frequent phase variation. A reversible +1/-1 frameshift mutation within a poly(dC) repeat altering the reading frame of the polysialyltransferase gene (siaD ), thereby causing premature arrest of translation, is responsible for loss of capsule expression. After analysis of transcription of the siaD gene from an encapsulated strain and from two unencapsulated derivatives, we have found that the siaD mRNA in the unencapsulated strains is reduced in size as a result of premature transcription termination at a cryptic Rho-dependent site within the proximal region of the siaD cistron. Termination is sensitive to bicyclomycin, a natural inhibitor of Rho activity. Bicyclomycin decreased the rates of capsule re-expression (off-on) without affecting the rates of loss of capsule expression (on-off). This finding suggested the existence of a novel mechanism linking transcription elongation termination and mutation frequency. A genetic system was therefore developed to measure phase variation of siaD-ermC' gene fusions in wild type and Rho-defective Escherichia coli strains. These studies demonstrated that in the Rho-defective E. coli strain readthrough transcription of the mutated siaD gene caused a fourfold lower off-on phase variation rate than in the congenic Rho+ strain. Analysis of phase variation of siaD-ermC' gene fusions in a DNA mismatch-defective E. coli strain suggests that the effect of transcription on mutation rates required a functional mismatch repair system.