Sponges are considered the oldest living animal group and provide important insights into the earliest evolutionary processes in the Metazoa. This paper reviews the evidence that sponge stem cells have essential roles in cellular specialization, embryogenesis and Bauplan formation. Data indicate that sponge archaeocytes not only represent germ cells but also totipotent stem cells. Marker genes have been identified which are expressed in totipotent stem cells and gemmule cells. Furthermore, genes are described for the three main cell lineages in sponge, which share a common origin from archaeocytes and result in the differentiation of skeletal, epithelial, and contractile cells.