Genealogy can illuminate the evolutionary path of important human pathogens. In some microbes, strict clonal reproduction predominates, as with the worldwide dissemination of Mycobacterium leprae, the cause of leprosy. In other pathogens, sexual reproduction yields clones with novel attributes, for example, enabling the efficient, oral transmission of the parasite Toxoplasma gondii. However, the roles of clonal or sexual propagation in the origins of many other microbial pathogen outbreaks remain unknown, like the recent fungal meningoencephalitis outbreak on Vancouver Island, Canada, caused by Cryptococcus gattii. Here we show that the C. gattii outbreak isolates comprise two distinct genotypes. The majority of isolates are hypervirulent and have an identical genotype that is unique to the Pacific Northwest. A minority of the isolates are significantly less virulent and share an identical genotype with fertile isolates from an Australian recombining population. Genotypic analysis reveals evidence of sexual reproduction, in which the majority genotype is the predicted offspring. However, instead of the classic a–α sexual cycle, the majority outbreak clone appears to have descended from two α mating-type parents. Analysis of nuclear content revealed a diploid environmental isolate homozygous for the major genotype, an intermediate produced during same-sex mating. These studies demonstrate how cryptic same-sex reproduction can enable expansion of a human pathogen to a new geographical niche and contribute to the ongoing production of infectious spores. This has implications for the emergence of other microbial pathogens and inbreeding in host range expansion in the fungal and other kingdoms.