Preliminary tests have confirmed the H5 avian flu virus in a sample from a swan found dead in Fife, health officials have revealed.
The exact virus strain is not known, but tests were continuing and further results were expected on Thursday.
The Scottish Executive said restrictions had been put in place around Cellardyke, east of Anstruther.
If the disease is confirmed as the deadly H5N1 strain there may be further restrictions set up.
The dead bird was found near the coast in an emaciated state. Samples were being sent for analysis at the EU's bird flu laboratory in Weybridge, Surrey.
An executive spokesman said: "In accordance with a recent EU decision the Scottish Executive is putting in place a protection zone of a minimum of three kilometres radius and a surveillance zone of 10 kilometres.
"Keepers of birds in the protection zone are being instructed to isolate their birds from wild birds, by taking them indoors where ever possible."
Measures to restrict the movement of poultry, eggs and poultry products from these zones will be brought into effect immediately.
Officials stressed that there was no reason for public health concern.
It is understood that the government's national emergency committee Cobra will meet on Thursday.
Representatives from Defra, the Scottish Executive, the Department of Health, the Cabinet Office and 10 Downing Street are expected to attend.
The H5N1 virus does not at present pose a large-scale threat to humans, as it cannot pass easily from one person to another.
However, experts fear the virus could mutate to gain this ability, and in its new form trigger a flu pandemic, potentially putting millions of human lives at risk.
According to the National Farmers Union Scotland, the Scottish poultry industry produces 127,000 tones of meat and 740 million eggs. However, there are thought to be no poultry farms in the immediate area of flu case.
Police have been stopping traffic around the affected area
Chief Veterinary Officer for Scotland Charles Milne said: "Whilst disease has yet to be confirmed, this is an important development.
"Bird keepers outside the protection zone should redouble their efforts to prepare for bringing their birds indoors if that becomes necessary.
"They must also review their biosecurity measures to ensure that all possible precautions have been taken."
Liberal Democrat leader Sir Menzies Campbell, in whose Fife North East constituency the bird was found, said he would follow the situation "very closely".
He said: "I have spoken directly to the (agriculture) minister, Ben Bradshaw, who has told me there cannot be final confirmation until tomorrow.
"I have his assurance that all necessary steps will be taken and that there is no health risk to humans."
First Minister Jack McConnell said he had spoken to other ministerial offices and was being kept informed of the situation.
Mr McConnell was notified whilst on an engagement in Washington as part of his involvement in Tartan Week.
BBC Scotland rural affairs correspondent Ken Rundle said that whilst the poultry industry would be on high alert, there would be relief that the virus had been found in a wild bird and not on a poultry farm.
BBC medical correspondent Fergus Walsh added that concerns over the case should not get out of proportion.
He said it could mean a potential crisis for the poultry industry, but not for humans.
Denmark recorded its first case of the potentially deadly H5N1 avian flu virus last month.
The strain has already been found in Europe in Switzerland, Poland, Serbia-Montenegro and Albania.
France recorded its first case in February.
Dr David Nabarro, the UN bird flu co-ordinator, told News 24: "Over the last few weeks we've seen swans and other birds dying in Western Europe and being found to have this virus, H5N1, on board.
"So, it's quite to be expected you have a case appearing in Scotland."