We present the 207 Mb genome sequence of the outcrosser Arabidopsis lyrata, which diverged from the self-fertilizing species A. thaliana about 10 million years ago. It is generally assumed that the much smaller A. thaliana genome, which is only 125 Mb, constitutes the derived state for the family. Apparent genome reduction in this genus can be partially attributed to the loss of DNA from large-scale rearrangements, but the main cause lies in the hundreds of thousands of small deletions found throughout the genome. These occurred primarily in non-coding DNA and transposons, but protein-coding multi-gene families are smaller in A. thaliana as well. Analysis of deletions and insertions still segregating in A. thaliana indicates that the process of DNA loss is ongoing, suggesting pervasive selection for a smaller genome.