Endozoicomonas bacteria are generally beneficial symbionts of diverse marine invertebrates including reef-building corals, sponges, sea squirts, sea slugs, molluscs, and Bryozoans. In contrast, the recently reported Ca. Endozoicomonas cretensis was identified as a vertebrate pathogen, causing epitheliocystis in fish larvae resulting in massive mortality. Here, we described the Ca. E. cretensis draft genome, currently undergoing genome decay as evidenced by massive insertion sequence (IS element) expansion and pseudogene formation. Many of the insertion sequences are also predicted to carry outward-directed promoters, implying that they may be able to modulate the expression of neighbouring coding sequences (CDSs). Comparative genomic analysis has revealed many Ca. E. cretensis-specific CDSs, phage integration and novel gene families. Potential virulence related CDSs and machineries were identified in the genome, including secretion systems and related effector proteins, and systems related to biofilm formation and directed cell movement. Mucin degradation would be of importance to a fish pathogen, and many candidate CDSs associated with this pathway have been identified. The genome may reflect a bacterium in the process of changing niche from symbiont to pathogen, through expansion of virulence genes and some loss of metabolic capacity.