Fifteen newborn Saanen goats were orally infected with a biologically cloned isolate of caprine arthritis-encephalitis virus (CAEV-63). At 33.5 months after infection, 8 of 12 seropositive goats had CAEV-63-specific neutralizing antibody. Five neutralization-positive goats developed clinically apparent arthritis of carpal joints, three of which had periarticular swelling indicating severe synovitis. Arthritis was not evident in age-matched controls or infected goats without neutralizing antibody. Multiple viral isolates were obtained from synovial fluid or synovial fluid cells of arthritic joints between 36.4 and 44.9 months after infection, and successive isolates from individual joints were defined as antigenic variants expressing type-specific neutralization epitopes. Thus, the evolution of neutralizing antibody does not arrest viral replication or development of progressive inflammatory lesions. Rather, some antigenic variants produced in the presence of neutralizing antibody are clonally expanded within carpal joints, and severe joint inflammation is specifically associated with these variants.