We introduce a general class of models for sequence evolution that inc
ludes network phylogenies. Networks, a generalization of strictly tree
-like phylogenies, are proposed to model situations where multiple lin
eages contribute to the observed sequences. An algorithm to compute th
e probability distribution of binary character-state configurations is
presented and statistical inference for this model is developed in a
likelihood framework. A stepwise procedure based on likelihood ratios
is used to explore the space of models. Starting with a star phylogeny
, new splits (nontrivial bipartitions of the sequence set) are success
ively added to the model until no significant change in the likelihood
is observed. A novel feature of our approach is that the new splits a
re not necessarily constrained to be consistent with a treelike mode o
f evolution. The fraction of invariable sites is estimated by maximum
likelihood simultaneously with other model parameters and is essential
to obtain a good fit to the data. The effect of finite sequence lengt
h on the inference methods is discussed. Finally, we provide an illust
rative example using aligned VP1 genes from the foot and mouth disease
viruses (FMDV). The different serotypes of the FMDV exhibit a range o
f treelike and network evolutionary relationships.