Nematodes compose an abundant and diverse invertebrate phylum with members inhabiting nearly every ecological niche. Panagrellus redivivus (the "microworm") is a free-living nematode frequently used to understand the evolution of developmental and behavioral processes given its phylogenetic distance to Caenorhabditis elegans. Here we report the de novo sequencing of the genome, transcriptome, and small RNAs of P. redivivus. Using a combination of automated gene finders and RNA-seq data, we predict 24,249 genes and 32,676 transcripts. Small RNA analysis revealed 248 microRNA (miRNA) hairpins, of which 63 had orthologs in other species. Fourteen miRNA clusters containing 42 miRNA precursors were found. The RNA interference, dauer development, and programmed cell death pathways are largely conserved. Analysis of protein family domain abundance revealed that P. redivivus has experienced a striking expansion of BTB domain-containing proteins and an unprecedented expansion of the cullin scaffold family of proteins involved in multi-subunit ubiquitin ligases, suggesting proteolytic plasticity and/or tighter regulation of protein turnover. The eukaryotic release factor protein family has also been dramatically expanded and suggests an ongoing evolutionary arms race with viruses and transposons. The P. redivivus genome provides a resource to advance our understanding of nematode evolution and biology and to further elucidate the genomic architecture leading to free-living lineages, taking advantage of the many fascinating features of this worm revealed by comparative studies.