Wolbachia bacteria are endosymbiotic partners of many animal species, in which they behave as either parasites (in arthropod hosts) or mutualists (in nematode hosts). What biochemistry and biology underpin these diverse lifestyles? The recent complete sequencing of genomes from Wolbachia that infect the arthropod Drosophila melanogaster and the nematode Brugia malayi, together with the partial genome sequencing of three Wolbachia strains found in drosophilids, enables this question to begin to be addressed. Parasitic arthropod Wolbachia are characterized by the presence of phages that carry ankyrin-repeat proteins; these proteins might be exported to the host cell to manipulate reproduction. In nematode Wolbachia, which lack these phages, several biochemical pathways can deliver essential metabolites to the nematode hosts. Nematode Wolbachia might also have a role in modulating the mammalian host immune system but the sequenced Wolbachia genomes lack the genes to synthesize lipopolysaccharide, raising questions about the nature of the inducing molecule. The Wolbachia surface protein might carry out this function.