An aminoglycoside- and ceftazidime-resistant strain of Klebsiella pneumoniae K2 producing the extended-spectrum beta-lactamase SHV-5 infected or colonized 14 pediatric patients at Guy's Hospital. The patients were mostly neonates recovering from cardiac surgery for congenital defects. The organism was also isolated from a nurse and from the father of one of the children. Four patients had septicemia, and two septicemic neonates with postoperative renal failure died. Aminoglycoside and cephalosporin resistance transferred to Escherichia coli in vitro on a 160-kb plasmid, and a similar resistant E. coli strain was isolated from the stools of one of the affected children. The epidemic organism colonized the bowel and skin and was probably transmitted via staff hands. Five wards were involved because of extensive patient movements. The outbreak was controlled by patient isolation and attention to handwashing. All of the isolates of the outbreak strain were identical by phage typing, ribotyping, plasmid profiling, and biochemical and serological testing, but they varied in their production of SHV-5. Some isolates produced normal amounts of SHV-5 and were susceptible to beta-lactam-beta-lactamase inhibitor combinations. Others, including the single isolate of multiresistant E. coli, produced up to five times as much enzyme as "normal" isolates. This hyperproduction resulted in increased resistance to several penicillins and cephalosporins and to the beta-lactam-beta-lactamase inhibitor combinations amoxicillin-clavulanic acid, ampicillin-sulbactam, piperacillin-tazobactam, and ceftazidime-clavulanic acid. The hyperproduction of SHV-5 by K. pneumoniae and E. coli seen in this outbreak suggests that beta-lactam-beta-lactamase inhibitor combinations may be unreliable for the treatment of organisms producing extended-spectrum beta-lactamases.