Stripe rust, caused by Puccinia striiformis f. sp. tritici (Pst), is one of the most destructive diseases of wheat. Here we report a 110-Mb draft sequence of Pst isolate CY32, obtained using a ‘fosmid-to-fosmid’ strategy, to better understand its race evolution and pathogenesis. The Pst genome is highly heterozygous and contains 25,288 protein-coding genes. Compared with non-obligate fungal pathogens, Pst has a more diverse gene composition and more genes encoding secreted proteins. Re-sequencing analysis indicates significant genetic variation among six isolates collected from different continents. Approximately 35% of SNPs are in the coding sequence regions, and half of them are non-synonymous. High genetic diversity in Pst suggests that sexual reproduction has an important role in the origin of different regional races. Our results show the effectiveness of the ‘fosmid-to-fosmid’ strategy for sequencing dikaryotic genomes and the feasibility of genome analysis to understand race evolution in Pst and other obligate pathogens.