The masked birch caterpillar, Drepana arcuata, provides an excellent opportunity to study mechanisms mediating developmental changes in social behaviour. Larvae transition from being social to solitary during the 3rd instar, concomitant with shifts in their use of acoustic communication. In this study we characterize the transcriptome of D. arcuata to initiate sociogenomic research of this lepidopteran insect. We assembled and annotated the combined larval transcriptome of "social" early and "solitary" late instars using next generation Illumina sequencing, and used this transcriptome to conduct differential gene expression analysis of the two behavioural phenotypes. A total of 211,012,294 reads generated by RNA sequencing were assembled into 231,348 transcripts and 116,079 unigenes for the functional annotation of the transcriptome. Expression analysis revealed 3300 transcripts that were differentially expressed between early and late instars, with a large proportion associated with development and metabolic processes. We independently validated differential expression patterns of selected transcripts using RT-qPCR. The expression profiles of social and solitary larvae revealed differentially expressed transcripts coding for gene products that have been previously reported to influence social behaviour in other insects (e.g. cGMP- and cAMP- dependent kinases, and bioamine receptors). This study provides the first transcriptomic resources for a lepidopteran species belonging to the superfamily Drepanoidea, and gives insight into genetic factors mediating grouping behaviour in insects.