Dicyemids, previously called "mesozoans" (intermediates between unicellular protozoans and multicellular metazoans), are an enigmatic animal group. They have a highly simplified adult body, comprising only ∼30 cells, and they have a unique parasitic lifestyle. Recently, dicyemids were shown to be spiralians, with affinities to the Platyhelminthes. In order to understand molecular mechanisms involved in evolution of this odd animal, we sequenced the genome of Dicyema japonicum and a reference transcriptome assembly using mixed-stage samples. The D. japonicum genome features a high proportion of repetitive sequences that account for 49% of the genome. The dicyemid genome is reduced to approximately 67.5 Mb with 5,012 protein-coding genes. Only four Hox genes exist in the genome, with no clustering. Gene distribution in KEGG pathways shows that D. japonicum has fewer genes in most pathways. Instead of eliminating entire critical metabolic pathways, parasitic lineages likely simplify pathways by eliminating pathway-specific genes, while genes with fundamental functions may be retained in multiple pathways. In principle, parasites can stand to lose genes that are unnecessary, in order to conserve energy. However, whether retained genes in incomplete pathways serve intermediate functions and how parasites overcome the physiological needs served by lost genes, remain to be investigated in future studies.