A highly pathogenic avian influenza virus, H5N1, caused disease outbreaks in poultry in China and seven other east Asian countries between late 2003 and early 2004; the same virus was fatal to humans in Thailand and Vietnam. Here we demonstrate a series of genetic reassortment events traceable to the precursor of the H5N1 viruses that caused the initial human outbreak in Hong Kong in 1997 (refs 2-4) and subsequent avian outbreaks in 2001 and 2002 (refs 5, 6). These events gave rise to a dominant H5N1 genotype (Z) in chickens and ducks that was responsible for the regional outbreak in 2003-04. Our findings indicate that domestic ducks in southern China had a central role in the generation and maintenance of this virus, and that wild birds may have contributed to the increasingly wide spread of the virus in Asia. Our results suggest that H5N1 viruses with pandemic potential have become endemic in the region and are not easily eradicable. These developments pose a threat to public and veterinary health in the region and potentially the world, and suggest that long-term control measures are required.