Borrelia burgdorferi causes Lyme disease, a multisystem illness that can persist in humans for many years. We describe recombination between homologous genes encoding the major outer surface proteins (Osps) A and B of B. burgdorferi which both deletes osp gene sequences and creates chimaeric gene fusions. Recombinant osp genes occur in multiple strains and encode unique proteins that lack some characteristic Osp epitopes. Antigenic variation in Osp through recombination may be relevant to the persistence of B. burgdorferi in an infected host, and has important implications for the utility of OspA and OspB as diagnostic or vaccine candidates for Lyme disease. We also describe Osp variation arising from nonsense mutations and sequence divergence, which may also represent significant sources of Osp polymorphism.