Recent molecular phylogenetic analyses suggest a close relationship between two worm-shaped phyla, the nonsegmented Sipuncula (peanut worms) and the segmented Annelida (e.g., earthworms and polychaetes) [1-5]. The striking differences in their bodyplans are exemplified by the annelids' paired, ladder-like ventral nervous system, which contains segmentally arranged ganglia, and the sipunculans' single ventral nerve cord (VNC), which is devoid of any segmental structures [6, 7]. Investigating central nervous system (CNS) formation with serotonin and FMRFamide labeling in a representative sipunculan, Phascolosoma agassizii, we found that neurogenesis initially follows a segmental pattern similar to that of annelids. Starting out with paired FMRFamidergic and serotonergic axons, four pairs of associated serotonergic perikarya and interconnecting commissures form one after another in an anterior-posterior progression. In late-stage larvae, the two serotonergic axons of the VNCs fuse, the commissures disappear, and one additional pair of perikarya is formed. These cells (ten in total) migrate toward one another, eventually forming two clusters of five cells each. These neural-remodeling processes result in the single nonmetameric CNS of the adult sipunculan. Our data confirm the segmental ancestry of Sipuncula and render Phascolosoma a textbook example for the Haeckelian hypothesis of ontogenetic recapitulation of the evolutionary history of a species [8].