During an outbreak of epidemic diarrhea a new serotype of Escherichia coli: E. coli 0127:B8, was isolated from 44 of 145 infants and from 1 nurse among 82 adult personnel in attendance. Among the 44 infants whose rectal swab cultures were positive, 20 were in the first month of life, 16 were 2 to 6 months of age, and 6 were 7 to 12 months of age, a total of 42 being in the first year of life. Severe epidemic diarrhea associated with the presence of E. coli 0127:B8 was characterized by the sudden development of extreme abdominal distention among some of the infants; explosive onset of diarrhea and the presence of a pungent, musty, objectionable odor not noticed around other patients with diarrhea. E. coli 0127: B8 was isolated more frequently while the patients were having diarrhea. Neomycin® was used orally for the specific treatment of patients with diarrhea. The early dosage was small due to our caution in using a new antibiotic. Over the 4 months period of this study the dosage was gradually increased. The average dose was 40 mg./kg./day for the patients with positive cultures and 46 mg./kg./day for those with negative cultures. Of 22 patients with positive cultures, 12 who were treated with Neomycin® alone or in addition to other antibiotics continued to show the presence of E. coli 0127:B8 after Neomycin® therapy had been terminated; however, only 2 of these patients had recurrence of diarrhea, both having had negative cultures while receiving Neomycin®. The administration of Neomycin® to every infant on the 2 wards, regardless of clinical condition, was followed by a decreasing incidence of diarrhea and decreasing detection of E. coli 0127:B8. The dose of Neomycin® was 40 to 50 mg./kg./day. It is our feeling that Neomycin® administered orally was of definite clinical value therapeutically and prophylactically but in the dosage used was inadequate bacteriologically. Four deaths occurred among the 44 infants whose rectal swab cultures were positive for E. coli 0127:B8 and necropsy studies were made on each. A hemorrhagic enteritis was present in 3 infants and in the fourth infant the cause of death was a congenital heart condition. Death of 1 patient with negative rectal swab cultures may very likely be attributed to severe diarrhea. Sera from patients and personnel failed to show the presence of agglutinins for E. coli 0127:B8. in vitro sensitivity tests showed that the order of decreasing bactericidal effectiveness of 5 antibiotics for E. coli 027:B8 was polymyxin, Neomycin®, chloramphenicol, Achromycin®, and Terramycin®. All strains were resistant to dihydrostreptomycin and sodium sulfadiazine. Only the last strains isolated from 2 patients showed increased resistance to Neomycin®, four-and sixteenfold when compared with the first strains isolated from the same patients.