Bursaphelenchus xylophilus is the nematode responsible for a devastating epidemic of pine wilt disease in Asia and Europe, and represents a recent, independent origin of plant parasitism in nematodes, ecologically and taxonomically distinct from other nematodes for which genomic data is available. As well as being an important pathogen, the B. xylophilus genome thus provides a unique opportunity to study the evolution and mechanism of plant parasitism. Here, we present a high-quality draft genome sequence from an inbred line of B. xylophilus, and use this to investigate the biological basis of its complex ecology which combines fungal feeding, plant parasitic and insect-associated stages. We focus particularly on putative parasitism genes as well as those linked to other key biological processes and demonstrate that B. xylophilus is well endowed with RNA interference effectors, peptidergic neurotransmitters (including the first description of ins genes in a parasite) stress response and developmental genes and has a contracted set of chemosensory receptors. B. xylophilus has the largest number of digestive proteases known for any nematode and displays expanded families of lysosome pathway genes, ABC transporters and cytochrome P450 pathway genes. This expansion in digestive and detoxification proteins may reflect the unusual diversity in foods it exploits and environments it encounters during its life cycle. In addition, B. xylophilus possesses a unique complement of plant cell wall modifying proteins acquired by horizontal gene transfer, underscoring the impact of this process on the evolution of plant parasitism by nematodes. Together with the lack of proteins homologous to effectors from other plant parasitic nematodes, this confirms the distinctive molecular basis of plant parasitism in the Bursaphelenchus lineage. The genome sequence of B. xylophilus adds to the diversity of genomic data for nematodes, and will be an important resource in understanding the biology of this unusual parasite.