Histidine kinase EnvZ, a transmembrane osmotic sensor for Escherichia coli, is a bifunctional enzyme having OmpR (its cognate response regulator) kinase and phosphorylated OmpR (OmpR‐P) phosphatase activities. Its cytoplasmic domain consists of domain A responsible for dimerization of EnvZ, histidine phosphotransfer and phosphatase activities, and domain B responsible for ATP binding. Here, we have constructed a number of substitution mutations at the G2 box, one of the conserved motifs in domain B, and demonstrated that they influence the phosphatase activity of EnvZ over a wide range. The effects of ADP, a cofactor for the phosphatase activity, were found to be substantially different depending upon the mutations. The effects of these mutations were also examined in vivo using a chimeric Tar–EnvZ construct (Taz1‐1), and the results agreed with the in vitro data for the phosphatase and kinase activities for all mutations. Using Taz1‐1 carrying the T402A mutation, three independent intragenic suppressor mutations (T235M, S269L and E276K) were isolated, and all were found in domain A. Together, the present results demonstrate for the first time that domain A and domain B are functionally co‐ordinated and topologi‐cally arranged in a specific manner. The G2 box may modulate the interaction between these two domains in response to extracellular osmolarity.