Streptococcus pneumoniae undergoes phase variation or spontaneous, reversible phenotypic variation in colony opacity, encapsulation, and pilus expression. The variation in colony opacity appears to occur in all strains, whereas the switches in the production of the capsule and pilus have been observed in several strains. This chapter elaborates on the variation in colony opacity since this phenomenon has been extensively characterized. S. pneumoniae produces opaque and transparent colonies on the translucent agar medium. The different colony phases are fundamentally distinct phenotypes in their metabolism and multiple characteristics, as exemplified by cell surface features and phenotypes in colonization and virulence. Opaque variants, which express more capsular polysaccharides and fewer teichoic acids, are more virulent in animal models of sepsis but colonize the nasopharynx poorly. In contrast, transparent variants, with fewer capsular polysaccharides and more teichoic acid, colonize the nasopharynx in animal models more efficiently but are relatively avirulent. Lastly, pneumococcal opacity variants are generated by differential methylation of the genome DNA variation. The reversible switch in the methylation pattern is caused by DNA inversions in three homologous hsdS genes of the colony opacity determinant (cod) or SpnD39III locus, a conserved type I restriction-modification (RM) system. The hsdS gene encodes the sequence recognition subunit of the type I RM DNA methyltransferase. The combination of DNA inversion and differential methylation, a complex mechanism of phase variation, generates a mixed population that may allow for the selection of organisms in vivo with characteristics permissive for either carriage or systemic infection.