Phenotypic switching has been linked to the virulence of many pathogens, including fungi. However, it has not been conclusively shown to occur in vivo or to influence the outcome of infection. Cryptococcus neoformans undergoes phenotypic switching in vitro to colony types that differ in their virulence in mice. In this study, we asked whether C. neoformans undergoes phenotypic switching in vivo and whether this phenomenon contributes to virulence. By using a small inoculum to preclude the introduction of variants that had already switched during in vitro propagation, we demonstrated that in vivo switching to a mucoid phenotype occurred in two mice strains and was associated with a lethal outcome. Phenotypic switching resulted in changes of the capsular polysaccharide that inhibited phagocytosis by alveolar macrophages. This promoted a more vigorous inflammatory response and rapid demise. These data document in vivo switching in a fungus and associate this phenomenon with enhanced virulence and a lethal outcome. The importance of this finding is underscored by the increased likelihood of phenotypic switching in chronic cryptococcosis; thus this mechanism may account for the inability to eradicate the organism in immunocompromised hosts.