The 2002-3 pandemic caused by severe acute respiratory syndrome coronavirus (SARS-CoV) was one of the most significant public health events in recent history(1). An ongoing outbreak of Middle East respiratory syndrome coronavirus(2) suggests that this group of viruses remains a key threat and that their distribution is wider than previously recognized. Although bats have been suggested to be the natural reservoirs of both viruses(3-5), attempts to isolate the progenitor virus of SARS-CoV from bats have been unsuccessful. Diverse SARS-like coronaviruses (SL-CoVs) have now been reported from bats in China, Europe and Africa(5-8), but none is considered a direct progenitor of SARS-CoV because of their phylogenetic disparity from this virus and the inability of their spike proteins to use the SARS-CoV cellular receptor molecule, the human angiotensin converting enzyme II (ACE2)(9,10). Here we report whole-genome sequences of two novel bat coronaviruses from Chinese horseshoe bats (family: Rhinolophidae) in Yunnan, China: RsSHC014 and Rs3367. These viruses are far more closely related to SARS-CoV than any previously identified bat coronaviruses, particularly in the receptor binding domain of the spike protein. Most importantly, we report the first recorded isolation of a live SL-CoV (bat SL-CoV-WIV1) from bat faecal samples in Vero E6 cells, which has typical coronavirus morphology, 99.9% sequence identity to Rs3367 and uses ACE2 from humans, civets and Chinese horseshoe bats for cell entry. Preliminary in vitro testing indicates that WIV1 also has a broad species tropism. Our results provide the strongest evidence to date that Chinese horseshoe bats are natural reservoirs of SARS-CoV, and that intermediate hosts may not be necessary for direct human infection by some bat SL-CoVs. They also highlight the importance of pathogen-discovery programs targeting high-risk wildlife groups in emerging disease hotspots as a strategy for pandemic preparedness.