We have investigated the interaction between BglF and BglG, two proteins that regulate expression of the E. coli bgl operon. BglF is both a negative regulator of operon expression and a phosphotransferase involved in uptake of beta-glucosides. BglG is a positive regulator that functions as a transcriptional antiterminator. We show here that BglF is phosphorylated by the soluble components of the phosphotransferase system: Enzyme I, HPr, and the phosphate donor phosphoenolpyruvate. Phosphorylated BglF can then transfer phosphate either to beta-glucosides or to wild-type BglG. Mutant BglG derivatives, which give constitutive expression of the bgl operon, show little or no phosphorylation by BglF. Hence BglF exerts its negative effect on operon expression by phosphorylating BglG, blocking its action as an antiterminator. BglG is dephosphorylated only in the presence of both BglF and beta-glucosides. Based on these results, we propose the following mechanism: In the absence of beta-glucosides, BglG is phosphorylated by BglF and is inactive in antitermination. Addition of inducer stimulates BglF to dephosphorylate BglG, allowing BglG to function as a positive regulator of operon expression. Beta-Glucosides are then phosphorylated and transported into the cell by BglF.