We report an outbreak of nosocomial infection caused by Klebsiella pneumoniae in the Special Care Nursery of Port Moresby General Hospital. In the 13 months between October 2007 and October 2008, this organism was cultured from the blood of 57 neonates, of whom 23 died. 16 of the 20 organisms cultured in the first 3 months were cephalosporin sensitive, but during the next 10 months the proportion of sensitive organisms dropped dramatically to 10 of 37. Of the 31 multidrug-resistant organisms 6 were resistant to all the routinely available drugs. Response to the outbreak is discussed. The report highlights the urgent need for the implementation of improved infection control practices and the promotion of rational antibiotic policies.