An outbreak of American cutaneous leishmaniasis (ACL) was detected in the village of Canoa in 1993. A prospective observational study was outlined to determine the frequency rates and to clinically characterize the disease. A total of 555 people were followed up. There were 29 cases of ACL, 11 cases of probably previous ACL (scars) and 529 healthy individuals. Of these 529 individuals, 65 had a positive Montenegro reaction without any present or past evidence of leishmaniasis. The prevalence of ACL during the two years was 5.2% (29/555). The leishmania involved was Leishmania braziliensis and the vector, Lutzomyia intermedia. Evidence of infection was detected in dogs and horses. The high frequency of the disease among children under ten years, the similar sex distribution of cases and a component of familial aggregation suggest a peri- or intra-domiciliary transmission.