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Heritable hypermutable strains deficient in DNA repair genes (mutators) facilitate microbial adaptation as they may rapidly generate beneficial mutations. Mutators deficient in mismatch (MMR) and oxidised guanine (OG) repair are abundant in clinical samples and show increased adaptive potential in experimental infection models but their role in pathoadaptation is poorly understood. Here we investigate the role of mutators in epidemiology and evolution of the broad host pathogen, Streptococcus iniae, employing 80 strains isolated globally over 40 years. We determine phylogenetic relationship among S. iniae using 10,267 non-recombinant core genome single nucleotide polymorphisms (SNPs), estimate their mutation rate by fluctuation analysis, and detect variation in major MMR (mutS, mutL, dnaN, recD2, rnhC) and OG (mutY, mutM, mutX) genes. S. iniae mutation rate phenotype and genotype are strongly associated with phylogenetic diversification and variation in major streptococcal virulence determinants (capsular polysaccharide, hemolysin, cell chain length, resistance to oxidation, and biofilm formation). Furthermore, profound changes in virulence determinants observed in mammalian isolates (atypical host) and vaccine-escape isolates found in bone (atypical tissue) of vaccinated barramundi are linked to multiple MMR and OG variants and unique mutation rates. This implies that adaptation to new host taxa, new host tissue, and to immunity of a vaccinated host is promoted by mutator strains. Our findings support the importance of mutation rate dynamics in evolution of pathogenic bacteria, in particular adaptation to a drastically different immunological setting that occurs during host jump and vaccine escape events.Importance Host immune response is a powerful selective pressure that drives diversification of pathogenic microorganisms and, ultimately, evolution of new strains. Major adaptive events in pathogen evolution, such as transmission to a new host species or infection of vaccinated hosts, require adaptation to a drastically different immune landscape. Such adaptation may be favoured by hypermutable strains (or mutators) that are defective in normal DNA repair and consequently capable of generating multiple potentially beneficial and compensatory mutations. This permits rapid adjustment of virulence and antigenicity in a new immunological setting. Here we show that mutators, through mutations in DNA repair genes and corresponding shifts in mutation rate, are associated with major diversification events and virulence evolution in the broad host-range pathogen Streptococcus iniae. We show that mutators underpin infection of vaccinated hosts, transmission to new host species and the evolution of new strains.