Detailed phylogenetic analyses were performed to characterize an HIV-1 outbreak among injection drug users (IDUs) in Stockholm, Sweden, in 2006. This study investigated the source and dynamics of HIV-1 spread during the outbreak as well as associated demographic and clinical factors. Seventy Swedish IDUs diagnosed during 2004 to 2007 were studied. Demographic, clinical, and laboratory data were collected, and the V3 region of the HIV-1 envelope gene was sequenced to allow detailed phylogenetic analyses. The results showed that the Stockholm outbreak was caused by a CRF01_AE variant imported from Helsinki, Finland, around 2003, which was quiescent until the outbreak started in 2006. Local Swedish subtype B variants continued to spread at a lower rate. The number of new CRF01_AE cases over a rooted phylogenetic tree accurately reflected the transmission dynamics and showed a temporary increase, by a factor of 12, in HIV incidence during the outbreak. Virus levels were similar in CRF01_AE and subtype B infections, arguing against differences in contagiousness. Similarly, there were no major differences in other baseline characteristics. Instead, the outbreak in Stockholm (and Helsinki) was best explained by an introduction of HIV into a standing network of previously uninfected IDUs. The combination of phylogenetics and epidemiological data creates a powerful tool for investigating outbreaks of HIV and other infectious diseases that could improve surveillance and prevention.