Many natural DNA sequences are restricted in Escherichia coli K-12, not only by the classic Type I restriction system EcoK, but also by one of three modification-specific restriction systems found in K-12. The McrBC system is the best studied of these. We infer from the base composition of the mcrBC genes that they were imported from an evolutionarily distant source. The genes are located in a hypervariable cluster of restriction genes that may play a significant role in generation of species identity in enteric bacteria. Restriction activity requires the products of two genes for activity both in vivo and in vitro. The mcrB gene elaborates two protein products, only one of which is required for activity in vitro, but both of which contain a conserved amino acid sequence motif identified as a possible GTP-binding site. The mcrC gene product contains a leucine heptad repeat that could play a role in protein-protein interactions. McrBC activity in vivo and in vitro depends on the presence of modified cytosine in a specific sequence context; three different modifications are recognized. The in vitro activity of this novel multi-subunit restriction enzyme displays an absolute requirement for GTP as a cofactor.