A serious disease of green, actively expanding stems of young Eucalyptus grandis, E. dunnii, E. globulus and E. globulus subsp. maidenii has been observed in plantations in Uruguay and Argentina during the course of the past 10 years. The symptoms of the disease are unlike those previously observed on any species of Eucalyptus. In this study, we describe the symptoms of this new disease and determine its cause. A diagnostic feature of the disease is a red discolouration of the young host tissue and blistering of the young bark leading to rapid shoot death. A bacterium was consistently isolated from the stem blisters on to nutrient agar, purified and a selection of six strains were subjected to standard phenotypic tests and 16S rRNA-, gyrB- and rpoB-gene sequencing. The ability of these strains to induce a hypersensitive reaction (HR) was tested on tobacco and a pathogenicity tests were undertaken on a E. grandis clone. The bacterium was found to be identical to Erwinia psidii. Strains inoculated into tobacco produced a HR within 36 h and discolouration of internal shoot tissue was observed in the inoculated E. grandis clone. Eucalyptus psidii is known to cause die-back of guava (Psidium guajava) which is closely related to Eucalyptus, also belonging to the Myrtaceae. Results of this study suggest that E. psidii has undergone a host shift to become an important pathogen of Eucalyptus spp. that are widely planted in South America to sustain important paper and pulp industries.