Here we report the complete genome sequence of Teredinibacter turnerae T7901. T. turnerae is a marine gamma proteobacterium that occurs as an intracellular endosymbiont in the gills of wood-boring marine bivalves of the family Teredinidae (shipworms). This species is the sole cultivated member of an endosymbiotic consortium thought to provide the host with enzymes, including cellulases and nitrogenase, critical for digestion of wood and supplementation of the host's nitrogen-deficient diet. T. turnerae is closely related to the free-living marine polysaccharide degrading bacterium Saccharophagus degradans str. 2–40 and to as yet uncultivated endosymbionts with which it coexists in shipworm cells. Like S. degradans, the T. turnerae genome encodes a large number of enzymes predicted to be involved in complex polysaccharide degradation (>100). However, unlike S. degradans, which degrades a broad spectrum (>10 classes) of complex plant, fungal and algal polysaccharides, T. turnerae primarily encodes enzymes associated with deconstruction of terrestrial woody plant material. Also unlike S. degradans and many other eubacteria, T. turnerae dedicates a large proportion of its genome to genes predicted to function in secondary metabolism. Despite its intracellular niche, the T. turnerae genome lacks many features associated with obligate intracellular existence (e.g. reduced genome size, reduced %G+C, loss of genes of core metabolism) and displays evidence of adaptations common to free-living bacteria (e.g. defense against bacteriophage infection). These results suggest that T. turnerae is likely a facultative intracellular ensosymbiont whose niche presently includes, or recently included, free-living existence. As such, the T. turnerae genome provides insights into the range of genomic adaptations associated with intracellular endosymbiosis as well as enzymatic mechanisms relevant to the recycling of plant materials in marine environments and the production of cellulose-derived biofuels.