The transition from unicellular to differentiated multicellular organisms constitutes an increase in the level complexity, because previously existing individuals are combined to form a new, higher-level individual. The volvocine algae represent a unique opportunity to study this transition because they diverged relatively recently from unicellular relatives and because extant species display a range of intermediate grades between unicellular and multicellular, with functional specialization of cells. Following the approach Darwin used to understand "organs of extreme perfection" such as the vertebrate eye, this jump in complexity can be reduced to a series of small steps that cumulatively describe a gradual transition between the two levels. We use phylogenetic reconstructions of ancestral character states to trace the evolution of steps involved in this transition in volvocine algae. The history of these characters includes several well-supported instances of multiple origins and reversals. The inferred changes can be understood as components of cooperation-conflict-conflict mediation cycles as predicted by multilevel selection theory. One such cycle may have taken place early in volvocine evolution, leading to the highly integrated colonies seen in extant volvocine algae. A second cycle, in which the defection of somatic cells must be prevented, may still be in progress.