Accumulating prokaryotic gene and genome sequences reveal that the exchange of genetic information through both homology-dependent recombination and horizontal (lateral) gene transfer (HGT) is far more important, in quantity and quality, than hitherto imagined. The traditional view, that prokaryotic evolution can be understood primarily in terms of clonal divergence and periodic selection, must be augmented to embrace gene exchange as a creative force, itself responsible for much of the pattern of similarities and differences we see between prokaryotic microbes. Rather than replacing periodic selection on genetic diversity, gene loss, and other chromosomal alterations as important players in adaptive evolution, gene exchange acts in concert with these processes to provide a rich explanatory paradigm-some of whose implications we explore here. In particular, we discuss (1) the role of recombination and HGT in giving phenotypic "coherence" to prokaryotic taxa at all levels of inclusiveness, (2) the implications of these processes for the reconstruction and meaning of "phylogeny," and (3) new views of prokaryotic adaptation and diversification based on gene acquisition and exchange.