Determination of the genome sequence of enterohemorrhagic Escherichia coli O157 Sakai and genomic comparison with the laboratory strain K-12 has revealed that the two strains share a highly conserved 4.1-Mb sequence and that each also contains a large amount of strain-specific sequence. The analysis also revealed the presence of a surprisingly large number of prophages in O157, most of which are lambda-like phages that resemble each other. Based on these results, we discuss how the E. coli strains have diverged from a common ancestral strain, and how bacteriophages contributed to this process. We also describe possible mechanisms by which O157 acquired many closely related phages, and raise the possibility that such bacteria might function as 'phage factories', releasing a variety of chimeric or mosaic phages into the environment.