H5N1 highly pathogenic avian influenza (HPAI) viruses have seriously affected the Asian poultry industry since their recurrence in 2003. The viruses pose a threat of emergence of a global pandemic influenza through point mutation or reassortment leading to a strain that can effectively transmit among humans. In this study, we present phylogenetic evidences for the interlineage reassortment among H5N1 HPAI viruses isolated from humans, cats, and birds in Indonesia, and identify the potential genetic parents of the reassorted genome segments. Parsimony analyses of viral phylogeography suggest that the reassortant viruses may have originated from greater Jakarta and surroundings, and subsequently spread to other regions in the West Java province. In addition, Bayesian methods were used to elucidate the genetic diversity dynamics of the reassortant strain and one of its genetic parents, which revealed a more rapid initial growth of genetic diversity in the reassortant viruses relative to their genetic parent. These results demonstrate that interlineage exchange of genetic information may play a pivotal role in determining viral genetic diversity in a focal population. Moreover, our study also revealed significantly stronger diversifying selection on the M1 and PB2 genes in the lineages preceding and subsequent to the emergence of the reassortant viruses, respectively. We discuss how the corresponding mutations might drive the adaptation and onward transmission of the newly formed reassortant viruses.