We report a major outbreak of rabies in dogs and other domestic animals that occurred in eastern Bhutan between May 2005 and November 2007. The outbreak peaked in February 2006 and subsided by the end of April 2006 with sporadic cases reported until November 2007. Rabies affected 18 of the 40 sub-districts in the three eastern districts of Bhutan. There were reportedly one human and 256 domestic animal fatalities. The outbreak affected cattle (n = 141, 55%), dogs (n = 106, 41%), horses (n = 7, 3%) and cats (n = 2, 1%). Rabies was primarily diagnosed by clinical signs but 36 cases were confirmed by fluorescent antibody test of brain samples. High densities and movements of free-roaming dogs might have been responsible for the rapid spread and persistence of the infection for a longer period than expected in dogs in eastern Bhutan.