Abstract Background The biphasic life cycle with pelagic larva and benthic adult stages is widely observed in the animal kingdom, including the Porifera (sponges), which are the earliest branching metazoans. The demosponge, Amphimedon queenslandica, undergoes metamorphosis from a free-swimming larva into a sessile adult that bears no morphological resemblance to other animals. While the genome of A. queenslandica contains an extensive repertoire of genes very similar to that of complex bilaterians, it is as yet unclear how this is drawn upon to coordinate changing morphological features and ecological demands throughout the sponge life cycle. Results To identify genome-wide events that accompany the pelagobenthic transition in A. queenslandica, we compared global gene expression profiles at four key developmental stages by sequencing the poly(A) transcriptome using SOLiD technology. Large-scale changes in transcription were observed as sponge larvae settled on the benthos and began metamorphosis. Although previous systematics suggest that the only clear homology between Porifera and other animals is in the embryonic and larval stages, we observed extensive use of genes involved in metazoan-associated cellular processes throughout the sponge life cycle. Sponge-specific transcripts are not over-represented in the morphologically distinct adult; rather, many genes that encode typical metazoan features, such as cell adhesion and immunity, are upregulated. Our analysis further revealed gene families with candidate roles in competence, settlement, and metamorphosis in the sponge, including transcription factors, G-protein coupled receptors and other signaling molecules. Conclusions This first genome-wide study of the developmental transcriptome in an early branching metazoan highlights major transcriptional events that accompany the pelagobenthic transition and point to a network of regulatory mechanisms that coordinate changes in morphology with shifting environmental demands. Metazoan developmental and structural gene orthologs are well-integrated into the expression profiles at every stage of sponge development, including the adult. The utilization of genes involved in metazoan-associated processes throughout sponge development emphasizes the potential of the genome of the last common ancestor of animals to generate phenotypic complexity.