An understanding of ctenophore biology is critical for reconstructing events that occurred early in animal evolution. Toward this goal, we have sequenced, assembled, and annotated the genome of the ctenophore Mnemiopsis leidyi. Our phylogenomic analyses of both amino acid positions and gene content suggest that ctenophores rather than sponges are the sister lineage to all other animals. Mnemiopsis lacks many of the genes found in bilaterian mesodermal cell types, suggesting that these cell types evolved independently. The set of neural genes in Mnemiopsis is similar to that of sponges, indicating that sponges may have lost a nervous system. These results present a newly supported view of early animal evolution that accounts for major losses and/or gains of sophisticated cell types, including nerve and muscle cells.