Outbreaks of avian influenza due to an H7N1 virus of low pathogenicity occurred in domestic poultry in northern Italy from March 1999 until December 1999 when a highly pathogenic avian influenza (HPAI) virus emerged. Nucleotide sequences were determined for the HA1 and the stalk region of the neuraminidase (NA) for viruses from the outbreaks. The HPAI viruses have an unusual multibasic haemagglutinin (HA) cleavage site motif, PEIPKGSRVRRGLF. Phylogenetic analysis showed that the HPAI viruses arose from low pathogenicity viruses and that they are most closely related to a wild bird isolate, A/teal/Taiwan/98. Additional glycosylation sites were present at amino acid position 149 of the HA for two separate lineages, and at position 123 for all HPAI and some low pathogenicity viruses. Other viruses had no additional glycosylation sites. All viruses examined from the Italian outbreaks had a 22 amino acid deletion in the NA stalk that is not present in the N1 genes of the wild bird viruses examined. We conclude that the Italian HPAI viruses arose from low pathogenicity strains, and that a deletion in the NA stalk followed by the acquisition of additional glycosylation near the receptor binding site of HA1 may be an adaptation of H7 viruses to a new host species i.e. domestic poultry.