The effect of dam methylation on Tn5 transposition was investigated by analyses of mutations in the host (Escherichia coli) and the element. Wild-type elements transposed at a higher frequency and showed higher levels of transposase expression in a dam-host. Mutations were made in the promoter region of the transcript that codes for the transposase. Transposition and transposase levels from these mutants were independent of the host methylation system. Measurements of the amount of RNA support the hypothesis that dam methylation exerts its effect on Tn5 transposition by modulating the frequency of transcriptional initiation of the transposase gene. Since Tn5 transposition increases when the transposase levels increase, at normal concentrations the amount of transposase is a rate-limiting factor that determines the transposition frequency of Tn5. Transposition of IS50, one of the insertion sequences that constitutes Tn5, is also sensitive to dam methylation by a second mechanism in addition to that of modulating transcriptional initiation. dam methylation, either directly or indirectly, inhibits the usage of IS50 sequences by the transposase. Thus, dam methylation can affect both the expression of the transposase and the DNA substrate upon which it acts.