Phase variably expressed (randomly switching) methyltransferases associated with type III restriction-modification (R-M) systems have been identified in a variety of pathogenic bacteria. We have previously shown that a phase variable methyltransferase (Mod) associated with a type III R-M system in Haemophilus influenzae strain Rd coordinates the random switching of expression of multiple genes, and constitutes a phase variable regulon - 'phasevarion'. We have now identified the recognition site for the Mod methyltransferase in H. influenzae strain Rd as 5′-CGAAT-3′. This is the same recognition site as the previously described HinfIII system. A survey of 59 H. influenzae strains indicated significant sequence heterogeneity in the central, variable region of the mod gene associated with target site recognition. Intra- and inter-strain transformation experiments using Mod methylated or non-methylated plasmids, and a methylation site assay demonstrated that the sequence heterogeneity seen in the region encoding target site specificity does correlate to distinct target sites. Mutations were identified within the res gene in several strains surveyed indicating that Res is not functional. These data suggest that evolution of this type III R-M system into an epigenetic mechanism for controlling gene expression has, in some strains, resulted in loss of the DNA restriction function.