To elucidate the role of sparrows as intermediate hosts of highly pathogenic avian influenza H5N1 viruses, we assessed shedding and interspecies waterborne transmission of A/duck/Laos/25/06 in sparrows and chickens. Inoculated birds shed virus at high titers from the oropharynx and cloaca, and infection was fatal. Waterborne transmission from inoculated sparrows to contact chickens was absent, while 25% of sparrows were infected via waterborne transmission from chickens. The viral shedding and susceptibility to infection we observed in sparrows, coupled with their presence in poultry houses, could facilitate virus spread among poultry and wild birds in the face of an H5N1 influenza virus outbreak.