Coleoid cephalopods (octopus, squid and cuttlefish) are active, resourceful 
predators with a rich behavioural repertoire. They have the largest nervous 
systems among the invertebrates and present other striking morphological 
innovations including camera-like eyes, prehensile arms, a highly derived early 
embryogenesis and a remarkably sophisticated adaptive colouration system. 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 lineage. 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 
described, 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.