Only one species of Shigella, Shigella dysenteriae 1, has been demonstrated to produce Shiga toxin (Stx). Stx is closely related to the toxins produced by Shiga toxin‐producing Escherichia coli (STEC). In STEC, these toxins are often encoded on lambdoid bacteriophages and are major virulence factors for these organisms. Although the bacteriophage‐encoded stx genes of STEC are highly mobile, the stx genes in S. dysenteriae 1 have been believed to be chromosomally encoded and not transmissible. We have located the toxin genes of S. dysenteriae 1 to a region homologous to minute 30 of the E. coli chromosome, within a 22.4 kbp putative composite transposon bracketed by IS600 insertion sequences. This region is present in all the S. dysenteriae 1 strains examined. Tandem amplification occurs via the flanking insertion sequences, leading to increased toxin production. The global regulatory gene, fnr, is located within the stx region, allowing deletions of the toxin genes to be created by anaerobic growth on chlorate‐containing medium. Deletions occur by recombination between the flanking IS600 elements. Lambdoid bacteriophage genes are found both upstream and within the region, and we demonstrate the lysogeny of Shigella species with STEC bacteriophages. These observations suggest that S. dysenteriae 1 originally carried a Stx‐encoding lambdoid prophage, which became defective due to loss of bacteriophage sequences after IS element insertions and rearrangements. These insertion sequences have subsequently allowed the amplification and deletion of the stx region.