The KZN strain family of Mycobacterium tuberculosis is a highly virulent strain endemic to the KwaZulu-Natal region of South Africa, which has recently experienced an outbreak of extensively-drug resistant tuberculosis. To investigate the causes and evolution of drug-resistance, we determined the DNA sequences of several clinical isolates--one drug-susceptible, one multi-drug resistant, and nine extensively drug-resistant--using whole-genome sequencing. Analysis of polymorphisms among the strains is consistent with the drug-susceptibility profiles, in that well-known mutations are observed that are correlated with resistance to isoniazid, rifampicin, kanamycin, ofloxacin, ethambutol, and pyrazinamide. However, the mutations responsible for rifampicin resistance in rpoB and pyrazinamide in pncA are in different nucleotide positions in the multi-drug-resistant and extensively drug-resistant strains, clearly showing that they acquired these mutations independently, and that the XDR strain could not have evolved directly from the MDR strain (though it could have arisen from another similar MDR strain). Sequencing of eight additional XDR strains from other areas of KwaZulu-Natal shows that they have identical drug resistant mutations to the first one sequenced, including the same polymorphisms at sites associated with drug resistance, supporting the theory that this represents a case of clonal expansion.