Background: The New Zealand collembolan genus Holacanthella contains the largest species of springtails (Collembola) in the world. Using Illumina technology we have sequenced and assembled a draft genome and transcriptome from Holacanthella duospinosa (Salmon). We have used this annotated assembly to investigate the genetic basis of a range of traits critical to the evolution of the Hexapoda, the phylogenetic position of H. duospinosa and potential horizontal gene transfer events. Results: Our genome assembly was ~375 Mbp in size with a scaffold N50 of ~230 Kbp and sequencing coverage of ~180×. DNA elements, LTRs and simple repeats and LINEs formed the largest components and SINEs were very rare. Phylogenomics (370,877 amino acids) placed H. duospinosa within the Neanuridae. We recovered orthologs of the conserved sex determination genes thought to play a role in sex determination. Analysis of CpG content suggested the absence of DNA methylation, and consistent with this we were unable to detect orthologs of the DNA methyltransferase enzymes. The small subunit rRNA gene contained a possible retrotransposon. The Hox gene complex was broken over two scaffolds. For chemosensory ability, at least 15 and 18 ionotropic glutamate and gustatory receptors were identified, respectively. However, we were unable to identify any odorant receptors or their obligate co-receptor Orco. Twenty-three chitinase-like genes were identified from the assembly. Members of this multigene family may play roles in the digestion of fungal cell walls, a common food source for these saproxylic organisms. We also detected 59 and 96 genes that blasted to bacteria and fungi, respectively, but were located on scaffolds that otherwise contained arthropod genes. Conclusions: The genome of H. duospinosa contains some unusual features including a Hox complex broken over two scaffolds, in a different manner to other arthropod species, a lack of odorant receptor genes and an apparent lack of environmentally responsive DNA methylation, unlike many other arthropods. Our detection of candidate horizontal gene transfer candidates confirms that this phenomenon is occurring across Collembola. These findings allow us to narrow down the regions of the arthropod phylogeny where key innovations have occurred that have facilitated the evolutionary success of Hexapoda.