A severe stem rust epidemic occurred in southern Ethiopia during November 2013 to January 2014, with yield losses close to 100% on the most widely grown wheat cultivar, ‘Digalu’. Sixty-four stem rust samples collected from the regions were analyzed. A meteorological model for airborne spore dispersal was used to identify which regions were most likely to have been infected from postulated sites of initial infection. Based on the analyses of 106 single-pustule isolates derived from these samples, four races of Puccinia graminis f. sp. tritici were identified: TKTTF, TTKSK, RRTTF, and JRCQC. Race TKTTF was found to be the primary cause of the epidemic in the southeastern zones of Bale and Arsi. Isolates of race TKTTF were first identified in samples collected in early October 2013 from West Arsi. It was the sole or predominant race in 31 samples collected from Bale and Arsi zones after the stem rust epidemic was established. Race TTKSK was recovered from 15 samples from Bale and Arsi zones at low frequencies. Genotyping indicated that isolates of race TKTTF belongs to a genetic lineage that is different from the Ug99 race group and is composed of two distinct genetic types. Results from evaluation of selected germplasm indicated that some cultivars and breeding lines resistant to the Ug99 race group are susceptible to race TKTTF. Appearance of race TKTTF and the ensuing epidemic underlines the continuing threats and challenges posed by stem rust not only in East Africa but also to wider-scale wheat production.