The Positive Transcription Elongation Factor b (P-TEFb) phosphorylates Ser2 residues of the C-terminal domain (CTD) of the largest subunit (RPB1) of RNA polymerase II and is essential for the transition from transcription initiation to elongation in vivo. Surprisingly, P-TEFb exhibits Ser5 phosphorylation activity in vitro. The mechanism garnering Ser2 specificity to P-TEFb remains elusive and hinders understanding of the transition from transcription initiation to elongation. Through in vitro reconstruction of CTD phosphorylation, mass spectrometry analysis, and chromatin immunoprecipitation sequencing (ChIP-seq) analysis, we uncover a mechanism by which Tyr1 phosphorylation directs the kinase activity of P-TEFb and alters its specificity from Ser5 to Ser2. The loss of Tyr1 phosphorylation causes an accumulation of RNA polymerase II in the promoter region as detected by ChIP-seq. We demonstrate the ability of Tyr1 phosphorylation to generate a heterogeneous CTD modification landscape that expands the CTD’s coding potential. These findings provide direct experimental evidence for a combinatorial CTD phosphorylation code wherein previously installed modifications direct the identity and abundance of subsequent coding events by influencing the behavior of downstream enzymes.