Highly Pathogenic Avian Influenza (HPAI) has been prevalent in Indonesia since 2003 causing major losses to poultry production and human deaths. Live bird markets are considered high risk areas due to the density of large numbers of mixed poultry species of unknown disease status. Understanding trader knowledge and perceptions of HPAI and biosecurity is critical to reducing transmission risk and controlling the disease. An interview-administered survey was conducted at 17 live bird markets on the islands of Bali and Lombok in 2008 and 2009. A total of 413 live poultry traders were interviewed. Respondents were mostly male (89%) with a mean age of 45 years (range: 19–81). The main source of AI information was TV (78%), although personal communication was also identified to be an important source, particularly among female traders (60%) and respondents from Bali (43%). More than half (58%) of live poultry traders interviewed knew that infected birds can transmit HPAI viruses but were generally unaware that viruses can be introduced to markets by fomites. Cleaning cages and disposing of sick and dead birds were recognized as the most important steps to prevent the spread of disease by respondents. Two thirds (n = 277) of respondents were unwilling to report sudden or suspicious bird deaths to authorities. Bali vendors perceive biosecurity to be of higher importance than Lombok vendors and are more willing to improve biosecurity within markets than traders in Lombok. Collectors and traders selling large numbers (>214) of poultry, or selling both chickens and ducks, have better knowledge of HPAI transmission and prevention than vendors or traders selling smaller quantities or only one species of poultry. Education was strongly associated with better knowledge but did not influence positive reporting behavior. Our study reveals that most live poultry traders have limited knowledge of HPAI transmission and prevention and are generally reluctant to report bird deaths. Greater efforts are needed to engage local government, market managers and traders in education and awareness programs, regulatory measures and incentive mechanisms. Understanding and evaluating the social responses to such an integrated approach could lead to more effective HPAI prevention and control.