On 26 Mar 2011, staff at Mongar Hospital in Bhutan was notified of an outbreak of bloody diarrhea in a remote village. An investigation was conducted to determine the magnitude of outbreak and the source of infection. A case was defined as an individual in the village who developed diarrhea between 18 Mar 2011 and 3 Apr 2011. Active case finding and an environmental survey were conducted in the village. Laboratory investigations of fecal and environmental samples were carried out. Of 94 people residing in the village, 38 (40.4%) met the case definition. One case died, giving the case fatality ratio of 2.6%. The attack rate among females (51.1%) was significantly higher than males (30.6%). The secondary attack rate within households was 25.0%. Shigella flexneri was isolated from two of 10 stool samples. Poor sanitation and inadequate hygiene were observed in the village. Water samples were found to have fecal contamination. By multiple logistic regression analysis, significant risk factors for contracting the disease included being female, having no latrine as well as visiting and eating food in a sick neighbor’s house. Shigella flexneri was the probable cause of the bloody diarrhea. Contaminated water might be the primary source of this enteric pathogen. Decontamination of water and improvement in hygiene might curtail future spread of the infection.