Previous studies demonstrate statistically significant associations between disease and climate variations, highlighting the potential for developing climate-based epidemic early warning systems. However, limitations include failure to allow for non-climatic confounding factors, limited geographical/temporal resolution, or lack of evaluation of predictive validity. Here, we consider such issues for dengue in Southeast Brazil using a spatio-temporal generalised linear mixed model with parameters estimated in a Bayesian framework, allowing posterior predictive distributions to be derived in time and space. This paper builds upon a preliminary study by Lowe et al. but uses extended, more recent data and a refined model formulation, which, amongst other adjustments, incorporates past dengue risk to improve model predictions. For the first time, a thorough evaluation and validation of model performance is conducted using out-of-sample predictions and demonstrates considerable improvement over a model that mirrors current surveillance practice. Using the model, we can issue probabilistic dengue early warnings for pre-defined ‘alert’ thresholds. With the use of the criterion ‘greater than a 50% chance of exceeding 300 cases per 100,000 inhabitants’, there would have been successful epidemic alerts issued for 81% of the 54 regions that experienced epidemic dengue incidence rates in February–April 2008, with a corresponding false alarm rate of 25%. We propose a novel visualisation technique to map ternary probabilistic forecasts of dengue risk. This technique allows decision makers to identify areas where the model predicts with certainty a particular dengue risk category, to effectively target limited resources to those districts most at risk for a given season. Copyright © 2012 John Wiley & Sons, Ltd.