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To assess the spread of HIV into rural areas.Since 1994 a demographic surveillance system (with 5-monthly rounds) and open adult cohort study have been established in a rural ward in Tanzania. Two sero-surveys of all resident adults aged 15-44 and 15-46 years were conducted in 1994-1995 and 1996-1997 respectively. Qualitative data were collected on mobility, bars and commercial sex.Attendance of the two rounds of survey was 5820 (78%) and 6413 (80%) in 1994/1995 and 1996/1997 respectively. HIV prevalence increased from 5.8% to 6.6%. HIV incidence was 0.73 and 0.84 per 100 person years among men and women respectively. HIV incidence under the age of 20 years was low among both sexes. Striking differences in HIV prevalence and incidence were observed within the small geographic area studied: HIV prevalence in the trading center was twice that in the area surrounding the trading center (within 2km) and three to four times that in the rural villages (within 8km of the trading center). Aggregate level data showed significant differences between the trading center and nearby rural villages in terms of sexual behavior, commercial sex workers, mobility of the population, and alcohol use.This study documents the existence of very substantial HIV prevalence and incidence differences within a small geographic rural area. The rapid decrease in HIV prevalence within a small rural area emphasizes the importance of concentrating HIV prevention efforts on high transmission areas, such as trading centers, especially in resource-poor settings. Furthermore, this has considerable implications for monitoring the spread of HIV through sentinel sites, as such sites are typically located in high transmission areas.