This paper reviews progress in developmental biology and phylogeny of the Nemertea, a common but poorly studied spiralian taxon of considerable ecological and evolutionary significance. Analyses of reproductive biology (including calcium dynamics during fertilization and oocyte maturation), larval morphology and development and developmental genetics have significantly extended our knowledge of spiralian developmental biology. Developmental genetics studies have in addition provided characters useful for reconstructing metazoan phylogeny. Reinvestigation of the cell lineage of Cerebratulus lacteus using fluorescent tracers revealed that endomesoderm forms from the 4d cell as in other spiralians and that ectomesoderm is derived from the 3a and 3b cells as in annelids, echiurans and molluscs. Studies examining blastomere specification show that cell fates are established precociously in direct developers and later in indirect developers. Morphological characters used to estimate the phylogenetic position of nemerteans are critically re-evaluated, and cladistic analyses of morphology reveal that conflicting hypotheses of nemertean relationships result because of different provisional homology statements. Analyses that include disputed homology statements (1, gliointerstitial cell system 2, coelomic circulatory system) suggest that nemerteans form the sister taxon to the coelomate spiralian taxa rather than the sister taxon to Platyhelminthes. Analyses of small subunit rRNA (18S rDNA) sequences alone or in combination with morphological characters support the inclusion of the nemerteans in a spiralian coelomate clade nested within a more inclusive lophotrochozoan clade. Ongoing evaluation of nemertean relationships with mitochondrial gene rearrangements and other molecular characters is discussed.