Background Kyasanur forest disease virus (KFDV) is a tick-borne flavivirus causing debilitating and potentially fatal disease in people in the Western Ghats region of India. The transmission cycle is complex, involving multiple vector and host species, but there are significant gaps in ecological knowledge. Empirical data on pathogen-vector-host interactions and incrimination have not been updated since the last century, despite significant local changes in land use and the expansion of KFD to new areas. Mathematical models predict that transovarial transmission, whereby adult female ticks pass KFDV infections to their offspring, plays an important role in the persistence of KFD, but this has not been shown in the wild. Here we set out to establish whether transovarial transmission of KFDV was occurring under natural field conditions by assessing whether host-seeking larvae were positive for KFDV. Methods Ticks were sampled by dragging and flagging across a broad range of habitats within the agro-forest matrix at 49 sites in two districts: Shivamogga, Karnataka and Wayanad, Kerala (September 2018-March 2019), and larvae were tested for KFDV by PCR. Results In total, larval ticks from 7 of the 49 sites sampled tested positive for KFDV, indicating that transovarial transmission is occurring. Of the 13 KFDV-positive larval samples, 3 came from around houses and gardens, 5 from crops (3 from harvested rice paddy and 2 from areca plantation), 1 from teak plantation and 4 (2 from 1 transect) from forests. Five different tick species were found to have KFDV-positive larvae: Haemaphysalis spinigera, H. bispinosa, Rhipicephalus annulatus, R. microplus and an unidentifiable species of Haemaphysalis (no close match in GenBank). Conclusions Our empirical confirmation of transovarial transmission has important implications for understanding and predicting KFD dynamics, suggesting that ticks may act as a reservoir for KFDV. Moreover, small mammals and cattle may play crucial roles in transmission if small mammals are the main hosts for larvae infected via transovarial transmission, and cattle support large numbers of infected female adult ticks. This first report of transovarial transmission of KFDV, and within a hitherto undescribed range of vectors and habitats, will help disease managers improve KFD surveillance and mitigation strategies, ultimately leading to communities becoming more resilient to the risk of this tick-transmitted disease.