Mycorrhizal symbioses the union of roots and soil fungi are universal in terrestrial ecosystems and may have been fundamental to land colonization by plants 1, 2. Boreal, temperate and montane forests all depend on ectomycorrhizae1. Identification of the primary factors that regulate symbiotic development and metabolic activity will therefore open the door to understanding the role of ectomycorrhizae in plant development and physiology, allowing the full ecological significance of this symbiosis to be explored. Here we report the genome sequence of the ectomycorrhizal basidiomycete Laccaria bicolor (Fig. 1) and highlight gene sets involved in rhizosphere colonization and symbiosis. This 65-megabase genome assembly contains 20,000 predicted protein-encoding genes and a very large number of transposons and repeated sequences. We detected unexpected genomic features, most notably a battery of effector-type small secreted proteins (SSPs) with unknown function, several of which are only expressed in symbiotic tissues. The most highly expressed SSP accumulates in the proliferating hyphae colonizing the host root. The ectomycorrhizae-specific SSPs probably have a decisive role in the establishment of the symbiosis. The unexpected observation that the genome of L. bicolor lacks carbohydrate-active enzymes involved in degradation of plant cell walls, but maintains the ability to degrade non-plant cell wall polysaccharides, reveals the dual saprotrophic and biotrophic lifestyle of the mycorrhizal fungus that enables it to grow within both soil and living plant roots. The predicted gene inventory of the L. bicolor genome, therefore, points to previously unknown mechanisms of symbiosis operating in biotrophic mycorrhizal fungi. The availability of this genome provides an unparalleled opportunity to develop a deeper understanding of the processes by which symbionts interact with plants within their ecosystem to perform vital functions in the carbon and nitrogen cycles that are fundamental to sustainable plant productivity.