Circoviruses are among the smallest and simplest of all viruses, but they are relatively poorly characterized. Here, we intensively sampled two sympatric parrot populations from Mauritius over a period of 11 years and screened for the circovirus Beak and feather disease virus (BFDV). During the sampling period, a severe outbreak of psittacine beak and feather disease, which is caused by BFDV, occurred in Echo parakeets. Consequently, this data set presents an ideal system for studying the evolution of a pathogen in a natural population and to understand the adaptive changes that cause outbreaks. Unexpectedly, we discovered that the outbreak was most likely caused by changes in functionally important regions of the normally conserved replication-associated protein gene and not the immunogenic capsid. Moreover, these mutations were completely fixed in the Echo parakeet host population very shortly after the outbreak. Several capsid alleles were linked to the replication-associated protein outbreak allele, suggesting that whereas the key changes occurred in the latter, the scope of the outbreak and the selective sweep may have been influenced by positive selection in the capsid. We found evidence for viral transmission between the two host populations though evidence for the invasive species as the source of the outbreak was equivocal. Finally, the high evolutionary rate that we estimated shows how rapidly new variation can arise in BFDV and is consistent with recent results from other small single-stranded DNA viruses.