The entire genome of the bacterium Mycoplasma pneumoniae M129 has been sequenced. It has a size of 816,394 base pairs with an average G+C content of 40.0 mol%. We predict 677 open reading frames (ORFs) and 39 genes coding for various RNA species. Of the predicted ORFs, 75.9% showed significant similarity to genes/proteins of other organisms while only 9.9% did not reveal any significant similarity to gene sequences in databases. This permitted us tentatively to assign a functional classification to a large number of ORFs and to deduce the biochemical and physiological properties of this bacterium. The reduction of the genome size of M. pneumoniae during its reductive evolution from ancestral bacteria can be explained by the loss of complete anabolic (e.g. no amino acid synthesis) and metabolic pathways. Therefore, M. pneumoniae depends in nature on an obligate parasitic lifestyle which requires the provision of exogenous essential metabolites. All the major classes of cellular processes and metabolic pathways are briefly described. For a number of activities/functions present in M. pneumoniae according to experimental evidence, the corresponding genes could not be identified by similarity search. For instance we failed to identify genes/proteins involved in motility, chemotaxis and management of oxidative stress.