We recently described the use of PCR to identify the environmental source of Mycobacterium ulcerans during an outbreak of ulcerative disease that occurred in a localized region of southeast Australia. The PCR used was based on amplification of the M. ulcerans-specific insertion sequence, IS2404. In this study we developed a new test that is a substantial improvement over the original PCR method in terms of sensitivity, reliability, and ease of use. In the new method magnetic bead sequence capture-PCR is used to detect two M. ulcerans sequences (IS2404 and IS2606) and total mycobacterial 16S ribosomal DNA. We used sequence capture-PCR to test water and plant material collected over a 12-month period during 1998 and 1999 from sites near the centers of two distinct foci of M. ulcerans infections. A golf course irrigation system in one area and a small shallow lake in another area repeatedly were PCR positive for M. ulcerans. Nearby sites and sites unrelated to the endemic areas were negative. Based on the PCR data, a most-probable-number method was used to estimate the concentration of M. ulcerans cells in positive samples from both regions. This procedure resulted in average concentrations of 0.5 cell per 100 ml of water and 40 cells per 100 g of detritus. Loss of the PCR signal coincided with a decrease in ulcerative disease in each area. These results provide further evidence that M. ulcerans may be transmitted from a point environmental source and demonstrate the utility of magnetic bead sequence capture-PCR for identification of nonculturable microbial pathogens in the environment.