In bacterial 16S rRNAs, methylated nucleosides are clustered within the decoding center, and these nucleoside modifications are thought to modulate translational fidelity. The N4, 2′-O-dimethylcytidine (m4Cm) at position 1402 of the Escherichia coli 16S rRNA directly interacts with the P-site codon of the mRNA. The biogenesis and function of this modification remain unclear. We have identified two previously uncharacterized genes in E. coli that are required for m4Cm formation. mraW (renamed rsmH) and yraL (renamed rsmI) encode methyltransferases responsible for the N4 and 2′-O-methylations of C1402, respectively. Recombinant RsmH and RsmI proteins employed the 30S subunit (not the 16S rRNA) as a substrate to reconstitute m4Cm1402 in the presence of S-adenosylmethionine (Ado-Met) as the methyl donor, suggesting that m4Cm1402 is formed at a late step during 30S assembly in the cell. A luciferase reporter assay indicated that the lack of N4 methylation of C1402 increased the efficiency of non-AUG initiation and decreased the rate of UGA read-through. These results suggest that m4Cm1402 plays a role in fine-tuning the shape and function of the P-site, thus increasing decoding fidelity.