Traditionally, Panarthropoda (Euarthropoda, Onychophora, Tardigrada) are regarded as being closely related to Annelida in a taxon Articulata, but this is not supported by molecular analyses. Comparisons of gene sequences suggest that all molting taxa (Panarthropoda, Nematoda, Nematomorpha, Priapulida, Kinorhyncha, Loricifera) are related in a monophyletic taxon Ecdysozoa. An examination of the characters supporting Articulata reveals that only segmentation with a teloblastic segment formation and the existence of segmental coelomic cavities with nephridia support the Articulata, whereas all other characters are modified or reduced in the panarthropod lineage. Another set of characters is presented that supports the monophyly of Ecdysozoa: molting under influence of ecdysteroid hormones, loss of locomotory cilia, trilayered cuticle and the formation of the epicuticle from the tips of epidermal microvilli. Comparative morphology suggests Gastrotricha as the sister group of Ecdysozoa with the synapomorphies: triradiate muscular sucking pharynx and terminal mouth opening. Thus there are morphological characters that support Articulata, but molecular as well as morphological data advocate Ecdysozoa. Comparison of both hypotheses should prompt further thorough and targeted investigations. J. Morphol. 238:263-285, 1998. © 1998 Wiley-Liss, Inc.