In the past two years, archaeal genomics has achieved several breakthroughs. On the evolutionary front the most exciting development was the sequencing and analysis of the genome of Nanoarchaeum equitans, a tiny parasitic organism that has only approximately 540 genes. The genome of Nanoarchaeum shows signs of extreme rearrangement including the virtual absence of conserved operons and the presence of several split genes. Nanoarchaeum is distantly related to other archaea, and it has been proposed to represent a deep archaeal branch that is distinct from Euryarchaeota and Crenarchaeota. This would imply that many features of its gene repertoire and genome organization might be ancestral. However, additional genome analysis has provided a more conservative suggestion - that Nanoarchaeum is a highly derived euryarchaeon. Also there have been substantial developments in functional genomics, including the discovery of the elusive aminoacyl-tRNA synthetase that is involved in both the biosynthesis of cysteine and its incorporation into proteins in methanogens, and the first experimental validation of the predicted archaeal exosome.