An outbreak of lumpy skin disease (LSD) occurred among cattle and water buffaloes in Egypt in 2006. Polymerase chain reaction (PCR) and the agar gel precipitation test (AGPT) were compared. Eight of ten (80%) tissue specimens from diseased cattle were positive with AGPT while 100% were positive with PCR. Of ten tissue specimens from diseased water buffaloes, 70% were positive with AGPT while 100% were positive with PCR. Ten milk samples were obtained from diseased water buffaloes; PCR detected nucleic acid of LSD virus (LSDV) in 50% while AGPT failed to detect LSDV antigen. Water buffaloes are susceptible to LSDV infection. The clinical signs of LSD were less severe in water buffaloes, but the virus was excreted in their milk. Diagnosis of LSD outbreaks by PCR will facilitate rapid application of control measures. Mass vaccination should be applied in both cattle and water buffaloes in Egypt using an effective specific vaccine against LSD, such as the attenuated Neethling strain vaccine or a recombinant vaccine.