The low-frequency noise of lattice-matched InAlAs/InGaAs/InP high electron mobility transistors (HEMT's) gate recess etched with a highly selective dry etching process and with conventional wet etching were studied at different gate and drain biases for the temperature range of 77-340 K, The measurements showed a significantly lower normalized drain current 1/f noise for the dry etched HEMT's under ail bias conditions. No difference in the normalized gate current 1/f noise could be observed for the two device types. By varying the temperature, four electron traps could be identified in the drain current noise spectra for both dry and wet etched devices. No additional traps were introduced by the dry etching step. The concentration of the main trap in the Schottky layer is one order of magnitude lower for the dry etched HEMT's, No hydrogen passivation of the shallow donors was observed in these devices. We presume hydrogen passivation of the deep levels as the cause for the trap density reduction. The kink effect in the dry etched HEMT's was observed to be reduced significantly compared with wet etched devices which gives further evidence of trap passivation during dry etching. These results show that dry etched InP HEMT's have suitable characteristics for the fabrication of devices for noise sensitive applications.