Aspergillus flavus is the major producer of carcinogenic aflatoxins (AFs) in crops worldwide. Natural populations of A. flavus show tremendous variation in AF production, some of which can be attributed to environmental conditions, differential regulation of the AF biosynthetic pathway and deletions or loss-of-function mutations in the AF gene cluster. Understanding the evolutionary processes that generate genetic diversity in A. flavus may also explain quantitative differences in aflatoxigenicity. Several population studies using multilocus genealogical approaches provide indirect evidence of recombination in the genome and specifically in the AF gene cluster. More recently, A. flavus has been shown to be functionally heterothallic and capable of sexual reproduction in laboratory crosses. In the present study, we characterize the progeny from nine A. flavus crosses using toxin phenotype assays, DNA sequence-based markers and array comparative genome hybridization. We show high AF heritability linked to genetic variation in the AF gene cluster, as well as recombination through the independent assortment of chromosomes and through crossing over within the AF cluster that coincides with inferred recombination blocks and hotspots in natural populations. Moreover, the vertical transmission of cryptic alleles indicates that while an A. flavus deletion strain is predominantly homokaryotic, it may harbour AF cluster genes at a low copy number. Results from experimental matings indicate that sexual recombination is driving genetic and functional hyperdiversity in A. flavus. The results of this study have significant implications for managing AF contamination of crops and for improving biocontrol strategies using nonaflatoxigenic strains of A. flavus.