Community-associated meticillin-resistant Staphylococcus aureus (CA-MRSA) is an emerging pathogen, increasingly reported worldwide to cause infections in individuals without classical risk factors for acquiring healthcare-associated MRSA (HA-MRSA). This report describes the first documented transmission of CA-MRSA in a healthcare setting in the UK, involving four babies and a member of staff in a neonatal unit. Detailed microbiological characterization of the isolates revealed that they represented a single clone with the following characteristics: multi-locus sequence type (MLST) 1; staphylococcal cassette chromosome mec (SCCmec) type IVa; protein A (spa) type t127; agr group 3, and encoding enterotoxins A and H. The Panton-Valentine leukocidin genes were not detected. The CA-MRSA strain appeared to be circulating alongside several subtypes of epidemic MRSA-15, the most prevalent HA-MRSA in the UK. A combination of infection control measures contained the outbreak. This report highlights the changing epidemiology of MRSA in the UK, and emphasizes the need for healthcare personnel to be alert to the fact that CA-MRSA can occur not only in the community but also in the healthcare setting.