Toxoplasma gondii undergoes differentiation from rapidly growing tachyzoites to slowly growing bradyzoites during its life cycle in the intermediate host, and conversion can be induced in vitro by stress. Representative strains of the three clonal lineages showed equal capacity to differentiate into bradyzoites in vitro, as evidenced by induction of bradyzoite antigen 1, staining with Dolichos biflorus lectin (DBL), pepsin resistance, and oral infectivity in mice. We also examined several recently described exotic strains of T. gondii, which are genetically diverse and have a different ancestry from the clonal lineages. The exotic strain COUG was essentially like the clonal lineages and showed a high capacity to induce bradyzoites in vitro and in vivo, consistent with its ability to be efficiently transmitted by the oral route. In contrast, exotic strains MAS and FOU, which are defective in oral transmission, showed a decreased potential to develop into bradyzoites in vitro. This defect was evident from reduced staining with DBL and the cyst antigen CST1, failure to down-regulate tachyzoite antigens, such as tachyzoite surface antigens 1 and 2A, and decreased resistance to pepsin treatment. Despite normal in vitro differentiation, the exotic strains CAST and GPHT also showed decreased oral transmission, due to formation of smaller cysts and a lower tissue burden during chronic infection, traits also shared by MAS and FOU. Collectively, these findings reveal that the limited oral transmission in some strains of T. gondii is due to inefficient differentiation to the bradyzoite form, leading to defects in the formation of tissue cysts.