The capsular polysaccharide is the major virulence factor of Streptococcus pneumoniae. Previously, we identified and cloned a region from the S. pneumoniae chromosome specific for the production of type 3 capsular polysaccharide. Now, by sequencing the region and characterizing mutations genetically and in an in vitro capsule synthesis assay, we have assigned putative functions to the products of the type-specific genes. Using DNA from the right end of the region in mapping studies, we have obtained further evidence indicating that the capsule genes of each serotype are contained in a gene cassette located adjacent to this region. We have cloned the region flanking the left end of the cassette from the type 3 chromosome and have found that it is repeated in the S. pneumoniae chromosome. The DNA sequence and hybridization data suggest a model for recombination of the capsule gene cassettes that not only describes the replacement of capsule genes, but also suggests an explanation for binary capsule type formation, and the creation of novel capsule types.