Octopus bimaculoides genome and transcriptome sequencing demonstrated that a core gene repertoire broadly similar to that of other invertebrate bilaterians is accompanied by expansions in the protocadherin and C2H2 zinc-finger transcription factor families and large-scale genome rearrangements closely associated with octopus-specific transposable elements. Octopuses have been called 'the most intelligent invertebrate', with a host of complex behaviours, and a nervous system comparable in size to that of mammals but organized in a very different manner. It had been hypothesized that, as in vertebrates, whole-genome duplication contributed to the evolution of this complex nervous system. Caroline Albertin et al. have sequenced the genome and multiple transcriptomes of the California two-spot octopus (Octopus bimaculoides) and find no evidence for such duplications but there are large-scale genome rearrangements closely associated with octopus-specific transposable elements. The core developmental and neuronal gene repertoire turns out to be broadly similar to that of other invertebrates, apart from expansions in two gene families formerly thought to be uniquely expanded in vertebrates — the protocadherins (cell-adhesion molecules that regulate neural development) and the C2H2 superfamily of zinc-finger transcription factors. Coleoid cephalopods (octopus, squid and cuttlefish) are active, resourceful predators with a rich behavioural repertoire1. They have the largest nervous systems among the invertebrates2 and present other striking morphological innovations including camera-like eyes, prehensile arms, a highly derived early embryogenesis and a remarkably sophisticated adaptive colouration system1,3. To investigate the molecular bases of cephalopod brain and body innovations, we sequenced the genome and multiple transcriptomes of the California two-spot octopus, Octopus bimaculoides. We found no evidence for hypothesized whole-genome duplications in the octopus lineage4,5,6. The core developmental and neuronal gene repertoire of the octopus is broadly similar to that found across invertebrate bilaterians, except for massive expansions in two gene families previously thought to be uniquely enlarged in vertebrates: the protocadherins, which regulate neuronal development, and the C2H2 superfamily of zinc-finger transcription factors. Extensive messenger RNA editing generates transcript and protein diversity in genes involved in neural excitability, as previously described7, as well as in genes participating in a broad range of other cellular functions. We identified hundreds of cephalopod-specific genes, many of which showed elevated expression levels in such specialized structures as the skin, the suckers and the nervous system. Finally, we found evidence for large-scale genomic rearrangements that are closely associated with transposable element expansions. Our analysis suggests that substantial expansion of a handful of gene families, along with extensive remodelling of genome linkage and repetitive content, played a critical role in the evolution of cephalopod morphological innovations, including their large and complex nervous systems.