Wolbachia are cytoplasmically inherited bacteria found in reproductive tissues of many arthropod species. These bacteria are associated with reproductive alterations in their hosts, including parthenogenesis, reproductive incompatibility and feminization. A fine-scale phylogenetic analysis was done using DNA sequences from ftsZ, a rapidly evolving bacterial cell-cycle gene. ftsZ sequences were determined for 38 different Wolbachia strains from 31 different species of insects and one isopod. The following results were found: (i) there are two major division of Wolbachia (A and B) which diverged 58-67 millions years before present based upon synonymous substitution rates; (ii) a general concordance is found between the ftsZ and 16S rDNA phylogenies, indicating that these represent bacterial strain (rather than simply gene) phylogenies; however, a possible example of recombination between A and B division bacteria may have occurred in the feminizing Wolbachia present in an isopod; (iii) extensive horizontal transmission of Wolbachia has occurred between insect taxa, including different insect orders; one strain in particular (designated Adm) shows extensive recent horizontal transmission; (iv) there is an association between the Wolbachia found in a parasitic wasp (Nasonia) and its fly host (Protocalliphora), suggesting exchange of bacteria between these species; (v) parthenogenesis induction has evolved several times among the Wolbachia; and (vi) some insects harbour infections with more than one Wolbachia strain, even within individual insects.