In November 2014, New South Wales Health was notified of a cluster of respiratory illness in a veterinary school. Active case finding identified another case at a local equine stud. All cases had exposure to the equine fetal membranes of Mare A. This tissue subsequently tested positive for Chlamydia psittaci using quantitative real-time polymerase chain reaction. We conducted a cohort study of the university and stud farm staff to determine risk factors for disease. Nine people were exposed to the fetal membranes of Mare A. Of these, five cases of psittacosis were identified. Two required hospital admission. Contact with birds was not associated with illness (RR=0.5, 95% CI=0.09–2.73). People who had direct contact with the abnormal fetal membranes were more likely to develop disease (RR=11.77, 95% CI=1.02–∞). The emergence of an association between horse exposure and C. psittaci infection has important implications for the prevention and control of psittacosis. Article summary line: Investigation of an outbreak of psittacosis in a rural veterinary school demonstrates novel source of infection for psittacosis through exposure to abnormal equine fetal membranes.