Animal genomes vary in size by orders of magnitude 1 . While genome size expansion relates to transposable element mobilisation 2-5 and polyploidisation 6-9 , the causes and consequences of genome reduction are unclear 1 . This is because our understanding of genome compaction relies on animals with extreme lifestyles, such as parasites 10,11 , and free-living animals with exceptionally high rates of evolution 12-15 . Here, we decode the extremely compact genome of the annelid Dimorphilus gyrociliatus, a morphologically miniature meiobenthic segmented worm 16 . With a ~68 Mb size, Dimorphilus genome is the second smallest ever decoded for a free-living animal. Yet, it retains many traits classically associated with larger and slower-evolving genomes, such as an ordered, intact Hox cluster, a generally conserved developmental toolkit, and traces of ancestral 3 bilaterian linkage. Unlike animals with small genomes, the analysis of Dimorphilus epigenome revealed canonical features of genome regulation, excluding the presence of operons and trans-splicing. Instead, the gene dense Dimorphilus genome presents divergent kynurenine and Myc pathways, key physiological regulators of growth, proliferation and genome stability in animal cells that can cause small body size when impaired 17-21 . Altogether, our results uncover a novel, conservative route to extreme genome compaction, suggesting a mechanistic relationship between genome size reduction and morphological miniaturisation in animals.Animals, and eukaryotes generally, exhibit a striking range of genome sizes across species 1 , seemingly uncorrelated with morphological complexity and gene content, which has been deemed the "C-value enigma" 22 . Animal genomes often increase in size mobilising their transposable element (TE) repertoire (e.g. in rotifers 2 , chordates 3,4 and insects 5 ) and through chromosome rearrangements and polyploidisation (e.g. in vertebrates and teleosts 6-8 , and insects 9 ), which is usually counterbalanced through TE removal 23 , DNA deletions 24,25 and rediploidisation 26 . Although the adaptive impact of these changes is complex and probably often influenced by neutral nonadaptive population dynamics 27 , genome expansions might also increase the evolvability of a lineage by providing new genetic material that can stimulate species radiation 6 and the evolution of new genome regulatory contexts 28 and gene architectures 29 . By contrast, the adaptive value of genome compaction is more debated and hypotheses are often based on correlative associations 1 , e.g. with changes in metabolic 30 and developmental rates 31 , cell sizes 1,32 , and the evolution of radically new lifestyles (e.g. powered flight in birds and bats 25,33 , and parasitism in nematodes 11 and orthonectids 10 ).Besides, extreme genomic compaction leading to minimal genome sizes, as in some freeliving species of nematodes 34 , tardigrades 35 and appendicularians 4,36 , co-occurs with 4 prominent changes in gene repertoire 37,38 , genome architecture (e.g. loss of macrosynt...