Early-diverging land plants such as mosses are known for their outstanding abilities to grow in various terrestrial habitats, incorporating tremendous structural and physiological innovations, as well as many lineage-specific genes. How these genes and functional innovations evolved remains unclear. In this study, we show that a dual-coding gene YAN/AltYAN in the moss Physcomitrella patens evolved from a pre-existing hemerythrin gene. Experimental evidence indicates that YAN/AltYAN is involved in fatty acid and lipid metabolism, as well as oil body and wax formation. Strikingly, both the recently evolved dual-coding YAN/AltYAN and the pre-existing hemerythrin gene might have similar physiological effects on oil body biogenesis and dehydration resistance. These findings bear important implications in understanding the mechanisms of gene origination and the strategies of plants to fine-tune their adaptation to various habitats.