In the Thousand Islands region of eastern Ontario, Canada, Lyme disease is emerging as a serious health risk. The factors that influence Lyme disease risk, as measured by the number of blacklegged tick (Ixodes scapularis) vectors infected with Borrelia burgdorferi, are complex and vary across eastern North America. Despite study sites in the Thousand Islands being in close geographic proximity, host communities differed and both the abundance of ticks and the prevalence of B. burgdorferi infection in them varied among sites. Using this archipelago in a natural experiment, we examined the relative importance of various biotic and abiotic factors, including air temperature, vegetation, and host communities on Lyme disease risk in this zone of recent invasion. Deer abundance and temperature at ground level were positively associated with tick abundance, whereas the number of ticks in the environment, the prevalence of B. burgdorferi infection, and the number of infected nymphs all decreased with increasing distance from the United States, the presumed source of this new endemic population of ticks. Higher species richness was associated with a lower number of infected nymphs. However, the relative abundance of Peromyscus leucopus was an important factor in modulating the effects of species richness such that high biodiversity did not always reduce the number of nymphs or the prevalence of B. burgdorferi infection. Our study is one of the first to consider the interaction between the relative abundance of small mammal hosts and species richness in the analysis of the effects of biodiversity on disease risk, providing validation for theoretical models showing both dilution and amplification effects. Insights into the B. burgdorferi transmission cycle in this zone of recent invasion will also help in devising management strategies as this important vector-borne disease expands its range in North America.