The acquisition of DNA and the loss of genetic information are two important mechanisms that contribute to strain-specific differences in genome content. In this study, comparative genomics has allowed us to infer the roles of genomic rearrangement and changes in both distribution and copy number of the insertion element, IS1096, in the evolution of Mycobacterium smegmatis mc2155 from its progenitor, M. smegmatis ATCC 607. Comparative analysis revealed that the ATCC 607 genome contains only 11 IS1096 elements against the 24 reported in mc2155. As mc2155 evolved, there was a considerable expansion in the copy number of IS1096 (+13) as well as duplication of a 56-kb fragment flanked on both sides by IS1096; concurrently, a single IS1096 element and its flank were deleted. This study demonstrates that insertion sequence (IS) expansion and IS-induced rearrangements such as duplication, deletion and shuffling are major forces driving genomic diversity and evolution.