Diversity-generating retroelements (DGRs) are a unique family of retroelements that confer selective advantages to their hosts by facilitating localized DNA sequence evolution through a specialized error-prone reverse transcription process. We characterized a DGR in Legionella pneumophila , an opportunistic human pathogen that causes Legionnaires disease. The L. pneumophila DGR is found within a horizontally acquired genomic island, and it can theoretically generate 10 26 unique nucleotide sequences in its target gene, legionella determinent target A ( ldtA ), creating a repertoire of 10 19 distinct proteins. Expression of the L. pneumophila DGR resulted in transfer of DNA sequence information from a template repeat to a variable repeat (VR) accompanied by adenine-specific mutagenesis of progeny VRs at the 3′end of ldtA . ldtA encodes a twin-arginine translocated lipoprotein that is anchored in the outer leaflet of the outer membrane, with its C-terminal variable region surface exposed. Related DGRs were identified in L. pneumophila clinical isolates that encode unique target proteins with homologous VRs, demonstrating the adaptability of DGR components. This work characterizes a DGR that diversifies a bacterial protein and confirms the hypothesis that DGR-mediated mutagenic homing occurs through a conserved mechanism. Comparative bioinformatics predicts that surface display of massively variable proteins is a defining feature of a subset of bacterial DGRs.