ABSTRACT: BACKGROUND: Despite decades of research, the molecular mechanisms responsible for the evolution of morphological diversity remain poorly understood. While current models assume that species-specific morphologies are governed by differential use of conserved genetic regulatory circuits, it is debated whether non-conserved taxonomically restricted genes (TRGs) are also involved in making taxonomically relevant structures. The genomic resources available in Hydra, a member of the early branching animal phylum Cnidaria, provide a unique opportunity to study the molecular evolution of morphological novelties such as the nematocyte, a cell type characteristic of and unique to Cnidaria. RESULTS: We have identified nematocyte specific genes by suppression subtractive hybridization and find that a considerable portion has no homologues to any sequences in animals outside Hydra. By analyzing the transcripts of these TRGs and mining of the Hydra magnipapillata genome we find unexpected complexity in gene structure and transcript processing. Transgenic Hydra expressing the GFP reporter under control of one of the TRG promoters recapitulate faithfully the described expression pattern, indicating that promoters of TRGs contain all elements essential for spatial and temporal control mechanisms. Surprisingly, phylogenetic footprinting of this promoter did not reveal any conserved cis-regulatory elements. CONCLUSION: Our findings suggest that taxonomically restricted genes are involved in the evolution of morphological novelties such as the cnidarian nematocyte. The transcriptional regulatory network controlling TRG expression may contain not yet characterized transcription factors or cis-regulatory elements.