To determine the incidence of physician-diagnosed Lyme disease in an endemic area of California, an active surveillance program was implemented in Lake, Mendocino, Sonoma, and southern Humboldt counties. More than 200 medical care providers were called monthly for their list of suspected cases of Lyme disease. Pertinent information was abstracted from the medical record of each patient. Of 153 cases of possible early Lyme disease ascertained from July 1991 to December 1992, 37% consisted of physician-diagnosed erythema migrans. Only 58% of erythema migrans rashes were at least 5 cm in diameter. An additional 43 patients had suspicious rashes not classified as erythema migrans. Of 166 patients with possible late-stage Lyme disease, 31% had specific clinical symptoms and 75% had a positive serologic test. With an incident case defined as physician-diagnosed erythema migrans of at least 5 cm in diameter, the annual incidence of Lyme disease in northwestern coastal California according to active surveillance only was 5.5 per 100,000. The rate of Lyme disease in California is substantially lower than that in the Atlantic northeastern United States. Many suspected cases of Lyme disease in this endemic area do not meet surveillance criteria, which are intentionally restrictive. Although some of the illnesses not meeting surveillance criteria may be due to infection with Borrelia burgdorferi, it appears that Lyme disease is being overdiagnosed in this area.