An outbreak of encephalitis with a case fatality rate of 78.3% was investigated among children in Gujarat State, India. Twenty-six cases were reported. Three patients had IgM antibodies to Chandipura virus. Virus was isolated from one patient with rhabdomyosarcoma in porcine stable cell lines and in suckling mice. Chandipura virus RNA was present in 9 of 20 acute-phase serum samples, and virus sequences from the present outbreak were closely related to prototype strain (1965) and Andhra Pradesh, India (2003) isolates. Serologic and molecular assays documented the absence of Japanese encephalitis virus, West Nile virus, dengue virus, and paramyxoviruses in clinical samples. The etiologic agent was Chandipura virus, which has become an important encephalitis-causing virus in India.