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Encystation of Giardia lamblia is required for survival outside the host, whereas excystation initiates infection. The dormant cyst was considered an adaptation to external survival and passage through the stomach. However, we found previously that trophozoites which had recovered after completion of the life cycle had switched their major variant surface protein (VSP), called TSA 417, but neither the timing nor the molecular mechanism of switching had been elucidated. Here we demonstrate that TSA 417 predominates in cysts, but is downregulated during the stage of excystation that models cyst arrival in the small intestine. Transcripts of new VSPs appear late in encystation, and during and after excystation. Trophozoites appear to prepare for switching during encystation, when the major VSP on the cell surface diminishes and is internalized in lysosome-like vacuoles. As short-range DNA rearrangements were not detected, giardial VSP switching during differentiation appears to resemble the in situ switching of surface glycoproteins in African trypanosomes. We also report a unique extended 15 nucleotide polyadenylation signal in all VSP transcripts, but not in other known giardial genes. Antigenic variation during encystation–excystation may be a novel form of immune evasion that could help explain the common occurrence of reinfection by Giardia and other parasites with similar life cycles.