Capsules frequently play a key role in bacterial interactions with their environment. Escherichia coli capsules were categorized as groups 1 through 4, each produced by a distinct mechanism. Etk and Etp are members of protein families required for the production of group 1 and group 4 capsules. These members function as a protein tyrosine kinase and protein tyrosine phosphatase, respectively. We show that Etp dephosphorylates Etk in vivo, and mutations rendering Etk or Etp catalytically inactive result in loss of group 4 capsule production, supporting the notion that cyclic phosphorylation and dephosphorylation of Etk is required for capsule formation. Notably, Etp also becomes tyrosine phosphorylated in vivo and catalyzes rapid auto-dephosphorylation. Further analysis identified Tyr121 as the phosphorylated residue of Etp. Etp containing Phe, Glu or Ala in place of Tyr121 retained phosphatase activity and catalyzed dephosphorylation of Etp and Etk. Although EtpY121E and EtpY121A still supported capsule formation, EtpY121F failed to do so. These results suggest that cycles of phosphorylation and dephosphorylation of Etp, as well as Etk, are involved in the formation of group 4 capsule, providing an additional regulatory layer to the complex control of capsule production.