Endosymbiosis-where a microbe lives and replicates within a host-is an important contributor to organismal function that has accelerated evolutionary innovations and catalyzed the evolution of complex life. The evolutionary processes associated with transitions to endosymbiosis, however, are poorly understood. Here, we leverage the wide diversity of host-associated lifestyles of the genus Arsenophonus to reveal the complex evolutionary processes that occur during the transition to a vertically transmitted endosymbiotic lifestyle from strains maintained solely by horizontal (infectious) transmission. We compared the genomes of 38 strains spanning diverse lifestyles from horizontally transmitted pathogens to obligate interdependent endosymbionts. Among culturable strains, we observed those with vertical transmission had larger genome sizes than closely related horizontally transmitting counterparts, consistent with evolutionary innovation and the rapid gain of new functions. Increased genome size was a consequence of prophage and plasmid acquisition, including a cargo of type III effectors, alongside the concomitant loss of CRISPR-Cas genome defense systems, enabling mobile genetic element expansion. Persistent endosymbiosis was also associated with loss of type VI secretion, which we hypothesize to be a consequence of reduced microbe-microbe competition. Thereafter, the transition to endosymbiosis with strict vertical inheritance was associated with the expected relaxation of purifying selection, gene pseudogenization, metabolic degradation, and genome reduction. We argue that reduced phage predation in endosymbiotic niches drives the loss of genome defense systems driving rapid genome expansion upon the adoption of endosymbiosis and vertical transmission. This remodeling enables rapid horizontal gene transfer-mediated evolutionary innovation and precedes the reductive evolution traditionally associated with adaptation to endosymbiosis.
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