In preparation for vaccine trials, HIV-1 genetic diversity was surveyed between 2002 and 2006 through the Cohort Development study in the form of a retrospective and prospective observational study in and around the town of Mbeya in Tanzania's Southwest Highlands. This study describes the molecular epidemiology of HIV-1 strains obtained from 97 out of 106 incident HIV-1 infections identified in three subpopulations of participants (one rural, two urban) from the Mbeya area. Near full-genome or half-genome sequencing showed a subtype distribution of 40% C, 17% A1, 1% D, and 42% inter-subtype recombinants. Compared to viral subtyping results previously obtained from the retrospective phase of this study, the overall proportion of incident viral strains did not change greatly during the study course, suggesting maturity of the epidemic. A comparison to a current Phase I-II vaccine being tested in Africa shows ∼17% amino acid sequence difference between the gp120 of the vaccine and subtype C incident strains. Phylogenetic and recombinant breakpoint analysis of the incident strains revealed the emergence of CRF41_CD and many unique recombinants, as well as the presence of six local transmission networks most of which were confined to the rural subpopulation. In the context of vaccine cohort selection, these results suggest distinct infection transmission dynamics within these three geographically close subpopulations. The diversity and genetic sequences of the HIV-1 strains obtained during this study will greatly contribute to the planning, immunogen selection, and analysis of vaccine-induced immune responses observed during HIV-1 vaccine trials in Tanzania and neighboring countries.