The bacterium Escherichia coli O157:H7 is a worldwide threat to public health and has been implicated in many outbreaks of haemorrhagic colitis, some of which included fatalities caused by haemolytic uraemic syndrome^,. Close to 75,000 cases of O157:H7 infection are now estimated to occur annually in the United States. The severity of disease, the lack of effective treatment and the potential for large-scale outbreaks from contaminated food supplies have propelled intensive research on the pathogenesis and detection of E. coli O157:H7 (ref. ). Here we have sequenced the genome of E. coli O157:H7 to identify candidate genes responsible for pathogenesis, to develop better methods of strain detection and to advance our understanding of the evolution of E. coli, through comparison with the genome of the non-pathogenic laboratory strain E. coli K-12 (ref. ). We find that lateral gene transfer is far more extensive than previously anticipated. In fact, 1,387 new genes encoded in strain-specific clusters of diverse sizes were found in O157:H7. These include candidate virulence factors, alternative metabolic capacities, several prophages and other new functions—all of which could be targets for surveillance.