Background: Nematode-trapping fungi are a unique group of organisms that can capture nematodes using sophisticated trapping structures. The genome of Drechslerella stenobrocha, a constricting-ring-forming fungus, has been sequenced and reported, and provided new insights into the evolutionary origins of nematode predation in fungi, the trapping mechanisms, and the dual lifestyles of saprophagy and predation. Results: The genome of the fungus Drechslerella stenobrocha, which mechanically traps nematodes using a constricting ring, was sequenced. The genome was 29.02 Mb in size and was found rare instances of transposons and repeat induced point mutations, than that of Arthrobotrys oligospora. The functional proteins involved in nematode-infection, such as chitinases, subtilisins, and adhesive proteins, underwent a significant expansion in the A. oligospora genome, while there were fewer lectin genes that mediate fungus-nematode recognition in the D. stenobrocha genome. The carbohydrate-degrading enzyme catalogs in both species were similar to those of efficient cellulolytic fungi, suggesting a saprophytic origin of nematode-trapping fungi. In D. stenobrocha, the down-regulation of saprophytic enzyme genes and the up-regulation of infection-related genes during the capture of nematodes indicated a transition between dual life strategies of saprophagy and predation. The transcriptional profiles also indicated that trap formation was related to the protein kinase C (PKC) signal pathway and regulated by Zn(2)-C6 type transcription factors. Conclusions: The genome of D. stenobrocha provides support for the hypothesis that nematode trapping fungi evolved from saprophytic fungi in a high carbon and low nitrogen environment. It reveals the transition between saprophagy and carnivory of these fungi and also proves new insights into the mechanisms of mechanical trapping.