Accession codes: Gene expression (RNA-seq) data were deposited in the NCBI GEO database with accession code GSE55182. The sequences of the spnD39III loci in the locked mutant strains were deposited in the GenBank nucleotide database with accession codes KJ955483, KJ955484, KJ955485, KJ955486, KJ398403 and KJ398404. Supplementary Information accompanies this paper at http://www.nature.com/ naturecommunications ; Streptococcus pneumoniae (the pneumococcus) is the world's foremost bacterial pathogen in both morbidity and mortality. Switching between phenotypic forms (or 'phases') that favour asymptomatic carriage or invasive disease was first reported in 1933. Here, we show that the underlying mechanism for such phase variation consists of genetic rearrangements in a Type I restriction-modification system (SpnD39III). The rearrangements generate six alternative specificities with distinct methylation patterns, as defined by single-molecule, real-time (SMRT) methylomics. The SpnD39III variants have distinct gene expression profiles. We demonstrate distinct virulence in experimental infection and in vivo selection for switching between SpnD39III variants. SpnD39III is ubiquitous in pneumococci, indicating an essential role in its biology. Future studies must recognize the potential for switching between these heretofore undetectable, differentiated pneumococcal subpopulations in vitro and in vivo. Similar systems exist in other bacterial genera, indicating the potential for broad exploitation of epigenetic gene regulation. ; This work was supported by The FP7 Marie Curie ITN 238490 and PNEUMOPATH 222983 (to M.R.O.), Program Grant 565526 from the National Health and Medical Research Council of Australia (NHMRC) (to J.C.P. and M.P.J.) and NHMRC Project Grants 627142 (to J.C.P. and A.D.O.) and 1034401 (to M.P.J.); J.C.P. is a NHMRC Senior Principal Research Fellow, C.T. is an Australian Research Council DECRA Fellow. The data mining part was in part supported by the Wellcome Trust Institutional Strategic Support Fund WT097828/Z/11/Z (RM33G0255 and RM33G0335). ; Peer-reviewed ; Publisher Version