Benthic annelids belonging to the family Syllidae (Annelida, Errantia, Phyllodocida) exhibit a unique reproduction mode called “schizogamy” or “stolonization”, in which the posterior body part filled with gametes detaches from the original body, as a reproductive unit (stolon) that autonomously swims and spawns. In this study, morphological and histological observations on the developmental processes during stolonization were carried out in Megasyllis nipponica. Results suggest that the stolon formation started with maturation of gonads, followed by the formation of a head ganglion in the anteriormost segment of the developing stolon. Then, the detailed stolon-specific structures such as stolon eyes and notochaetae were formed. Furthermore, expression profiles of genes involved in the anterior–posterior identity (Hox genes), head determination, germ-line, and hormone regulation were compared between anterior and posterior body parts during the stolonization process. The results reveal that, in the posterior body part, genes for gonadal development were up-regulated, followed by hormone-related genes and head-determination genes. Unexpectedly, Hox genes known to identify body parts along the anterior–posterior axis showed no significant temporal expression changes. These findings suggest that during stolonization, gonad development induces the head formation of a stolon, without up-regulation of anterior Hox genes.