To determine the cause of an unprecedented outbreak of encephalitis among horses in New South Wales, Australia, in 2011, we performed genomic sequencing of viruses isolated from affected horses and mosquitoes. Results showed that most of the cases were caused by a variant West Nile virus (WNV) strain, WNV(NSW2011), that is most closely related to WNV Kunjin (WNV(KUN)), the indigenous WNV strain in Australia. Studies in mouse models for WNV pathogenesis showed that WNV(NSW2011) is substantially more neuroinvasive than the prototype WNV(KUN) strain. In WNV(NSW2011), this apparent increase in virulence over that of the prototype strain correlated with at least 2 known markers of WNV virulence that are not found in WNV(KUN). Additional studies are needed to determine the relationship of the WNV(NSW2011) strain to currently and previously circulating WNV(KUN) strains and to confirm the cause of the increased virulence of this emerging WNV strain.