An encephalitis outbreak was investigated in Faridpur District, Bangladesh, in April-May 2004 to determine the cause of the outbreak and risk factors for disease. Biologic specimens were tested for Nipah virus. Surfaces were evaluated for Nipah virus contamination by using reverse transcription-PCR (RT-PCR). Thirty-six cases of Nipah virus illness were identified; 75% of case-patients died. Multiple peaks of illness occurred, and 33 case-patients had close contact with another Nipah virus patient before their illness. Results from a case-control study showed that contact with 1 patient carried the highest risk for infection (odds ratio 6.7, 95% confidence interval 2.9-16.8, p < 0.001). RT-PCR testing of environmental samples confirmed Nipah virus contamination of hospital surfaces. This investigation provides evidence for person-to-person transmission of Nipah virus. Capacity for person-to-person transmission increases the potential for wider spread of this highly lethal pathogen and highlights the need for infection control strategies for resource-poor settings.