Background The evolutionary origins of animal nervous systems remain contentious because we still have a limited understanding of neural development in most major animal clades. Annelids — a species-rich group with centralised nervous systems — have played central roles in hypotheses about the origins of animal nervous systems. However, most studies have focused on adults of deeply nested species in the annelid tree. Recently, Owenia fusiformis has emerged as an informative species to reconstruct ancestral traits in Annelida, given its phylogenetic position within the sister clade to all remaining annelids. Methods Combining immunohistochemistry of the conserved neuropeptides FVamide-lir, RYamide-lir, RGWamide-lir and MIP-lir with gene expression, we comprehensively characterise neural development from larva to adulthood in Owenia fusiformis. Results The early larval nervous system comprises a neuropeptide-rich apical organ connected through peripheral nerves to a prototroch ring and the chaetal sac. There are seven sensory neurons in the prototroch. A bilobed brain forms below the apical organ and connects to the ventral nerve cord of the developing juvenile. During metamorphosis, the brain compresses, becoming ring-shaped, and the trunk nervous system develops several longitudinal cords and segmented lateral nerves. Conclusions Our findings reveal the formation and reorganisation of the nervous system during the life cycle of O. fusiformis, an early-branching annelid. Despite its apparent neuroanatomical simplicity, this species has a diverse peptidergic nervous system, exhibiting morphological similarities with other annelids, particularly at the larval stages. Our work supports the importance of neuropeptides in animal nervous systems and the evolution of biphasic life cycles.