In this paper we present high spatial resolution radio images of the puzzling binary system beta Lyrae obtained with MERLIN at 5 GHz. We find a nebula surrounding the binary with a brightness temperature of (11000 +/- 700)K approximately 40 AU across. This definitively confirms the thermal origin of the radio emission, which is consistent with emission from the wind of the B6-8II component (mass loss of order of 10(-7) M.yr(-1)), ionized by the radiation field of the hotter companion. This nebula, surrounding the binary, is the proof that beta Lyrae evolved in a non-conservative way, i.e. not all the mass lost by the primary is accretted by the secondary, and present measurements indicate that almost 0.015 M. had been lost from the system since the onset of the Roche lobe overflow phase.