Abstract Free-living nematodes such as Caenorhabditis elegans and Pristionchus pacificus are powerful model systems for linking specific traits to their underlying genetic basis. To trace the evolutionary history of specific traits or genes, a robust phylogenomic framework is indispensable. In the context of the nematode family Diplogastridae to which P. pacificus belongs, the identity of a sister group has long been debated. In this work, we generated a pseudochromosome level genome assembly of the nematode Rhabditoides inermis, which has previously been proposed as the sister taxon. The genome was assembled from a complex microbial community that is stably associated with R. inermis isolates and that consists of multiple bacteria and a fungus, which we identified as a strain of Vanrija albida. The R. inermis genome spans 173.5Mb that are largely assembled into five pseudochromosomes. This chromosomal configuration likely arose from two recent fusions of different Nigon elements. Phylogenomic analysis did not support a sister group relationship between R. inermis and diplogastrids, but rather supports a sister group relationship between the monophyletic Diplogastridae and a group of genera of Rhabditidae including C. elegans and R. inermis. Thus, our work addresses for the first time the long lasting question about the sister group to diplogastrids at the phylogenomic level and provides with the genomes of R. inermis and the associated fungus V. albida valuable resources for future genomic comparisons.