We present the complete genomic sequence of the essential symbiont Polynucleobacter necessarius (Betaproteobacteria), which is a valuable case study for several reasons. First, it is hosted by a ciliated protist, Euplotes; bacterial symbionts of ciliates are still poorly known because of a lack of extensive molecular data. Second, the single species P. necessarius contains both symbiotic and free-living strains, allowing for a comparison between closely related organisms with different ecologies. Third, free-living P. necessarius strains are exceptional by themselves because of their small genome size, reduced metabolic flexibility, and high worldwide abundance in freshwater systems. We provide a comparative analysis of P. necessarius metabolism and explore the peculiar features of a genome reduction that occurred on an already streamlined genome. We compare this unusual system with current hypotheses for genome erosion in symbionts and free-living bacteria, propose modifications to the presently accepted model, and discuss the potential consequences of translesion DNA polymerase loss.