In bacterial 16S rRNAs, methylated nucleosides are clustered within the decoding center, and these nucleoside modifications are thought to modulate translational fidelity. The N⁴, 2′-O-dimethylcytidine (m⁴Cm) at position 1402 of the Escherichia coli 16S rRNA directly interacts with the P-site codon of the mRNA. The biogenesis and function of this modification remain unclear. We have identified two previously uncharacterized genes in E. coli that are required for m⁴Cm formation. mraW (renamed rsmH) and yraL (renamed rsmI) encode methyltransferases responsible for the N⁴ and 2′-O-methylations of C1402, respectively. Recombinant RsmH and RsmI proteins employed the 30S subunit (not the 16S rRNA) as a substrate to reconstitute m⁴Cm1402 in the presence of S-adenosylmethionine (Ado-Met) as the methyl donor, suggesting that m⁴Cm1402 is formed at a late step during 30S assembly in the cell. A luciferase reporter assay indicated that the lack of N⁴ methylation of C1402 increased the efficiency of non-AUG initiation and decreased the rate of UGA read-through. These results suggest that m⁴Cm1402 plays a role in fine-tuning the shape and function of the P-site, thus increasing decoding fidelity.