E. coli strains responsible for elevated counts (blooms) in freshwater reservoirs in Australia carry a capsule originating from Klebsiella. The occurrence of Klebsiella capsules in E. coli was about 7% overall and 23 different capsule types were detected. Capsules were observed in strains from phylogroups A, B1 and C, but were absent from phylogroup B2, D, E and F strains. In general, few A, B1 or C lineages were capsule-positive, but when a lineage was encapsulated multiple different capsule types were present. All Klebsiella capsule-positive strains were of serogroups O8, O9 and O89. Regardless of the phylogroup, O9 strains were more likely to be capsule-positive than O8 strains. Given the sequence similarity, it appears that both the capsule region and the O-antigen gene region are transferred to E. coli from Klebsiella as a single block via horizontal gene transfer events. Pan genome analysis indicated that there were only modest differences between encapsulated and non-encapsulated strains belonging to phylogroup A. The possession of a Klebsiella capsule, but not the type of capsule, is likely a key determinant of the bloom status of a strain.