Genome sequencing is revolutionizing clinical microbiology and our understanding of infectious diseases. Previous studies have largely relied on the sequencing of a single isolate from each individual. However, it is not clear what degree of bacterial diversity exists within, and is transmitted between individuals. Understanding this ‘cloud of diversity’ is key to accurate identification of transmission pathways. Here, we report the deep sequencing of methicillin-resistant Staphylococcus aureus among staff and animal patients involved in a transmission network at a veterinary hospital. We demonstrate considerable within-host diversity and that within-host diversity may rise and fall over time. Isolates from invasive disease contained multiple mutations in the same genes, including inactivation of a global regulator of virulence and changes in phage copy number. This study highlights the need for sequencing of multiple isolates from individuals to gain an accurate picture of transmission networks and to further understand the basis of pathogenesis.