Two term neonates born within four days of each other at a small hospital developed sepsis and meningitis caused by a unique strain of Citrobacter diversus not previously reported to cause meningitis. Eleven (27.5%) of 40 other infants admitted to the nursery during the epidemic period developed rectal or umbilical colonization by C. diversus. Contact soon after birth with either of two nurses was more common among infected or colonized infants than among infants who were not infected or colonized. Hand cultures of both nurses and a rectal culture of one of the nurses yielded the epidemic strain. C. diversus may have been introduced into the nursery by the rectal carrier and spread person to person. Six weeks later continued surveillance identified a second cluster (of four colonized infants) associated with a mother who was a carrier of C. diversus and whose newborn infant became colonized at birth. The outbreak ended after strict control measures were used.