All vertically transmitted bacterial symbionts undergo a process of genome reduction over time, resulting in tiny, gene-dense genomes. Comparison of genomes of ancient bacterial symbionts gives only limited information about the early stages in the transition from a free-living to symbiotic lifestyle because many changes become obscured over time. Here, we present the genome sequence for the recently evolved aphid symbiont Serratia symbiotica. The S. symbiotica genome exhibits several of the hallmarks of genome evolution observed in more ancient symbionts, including elevated rates of evolution and reduction in genome size. The genome also shows evidence for massive genomic decay compared with free-living relatives in the same genus of bacteria, including large deletions, many pseudogenes, and a slew of rearrangements, perhaps promoted by mobile DNA. Annotation of pseudogenes allowed examination of the past and current metabolic capabilities of S. symbiotica and revealed a somewhat random process of gene inactivation with respect to function. Analysis of mutational patterns showed that deletions are more common in neutral DNA. The S. symbiotica genome provides a rare opportunity to study genome evolution in a recently derived heritable symbiont.