In 1995 a severe haemolytic-uremic syndrome (HUS) outbreak in Adelaide occurred. A recent genomic analysis of Shiga toxigenic Escherichia coli (STEC) O111:H- strains 95JB1 and 95NR1 from this outbreak found that the more virulent isolate, 95NR1, harboured two additional copies of the Shiga toxin 2 (Stx2) genes encoded within prophage regions. The structure of the Stx2-converting prophages could not be fully resolved using short-read sequence data alone and it was not clear if there were other genomic differences between 95JB1 and 95NR1. In this study we have used Pacific Biosciences (PacBio) single molecule real-time (SMRT) sequencing to characterise the genome and methylome of 95JB1 and 95NR1. We completely resolved the structure of all prophages including two, tandemly inserted, Stx2-converting prophages in 95NR1 that were absent from 95JB1. Furthermore we defined all insertion sequences and found an additional IS1203 element in the chromosome of 95JB1. Our analysis of the methylome of 95NR1 and 95JB1 identified hemi-methylation of a novel motif (5'-CTGCm6AG-3') in more than 4000 sites in the 95NR1 genome. These sites were entirely unmethylated in the 95JB1 genome, and included at least 177 potential promoter regions that could contribute to regulatory differences between the strains. IS1203 mediated deactivation of a novel type IIG methyltransferase in 95JB1 is the likely cause of the observed differential patterns of methylation between 95NR1 and 95JB1. This study demonstrates the capability of PacBio SMRT sequencing to resolve complex prophage regions and reveal the genetic and epigenetic heterogeneity within a clonal population of bacteria.