Genes of the Hox cluster are restricted to the animal kingdom and play a central role in axial patterning in divergent animal phyla. Despite its evolutionary and developmental significance, the origin of the Hox gene cluster is obscure. The consensus is that a primordial Hox cluster arose by tandem gene duplication close to animal origins. Several homeobox genes with high sequence identity to Hox genes are found outside the Hox cluster and are known as 'dispersed' Hox-like genes; these genes may have been transposed away from an expanding cluster. Here we show that three of these dispersed homeobox genes form a novel gene cluster in the cephalochordate amphioxus. We argue that this 'ParaHox' gene cluster is an ancient paralogue (evolutionary sister) of the Hox gene cluster; the two gene clusters arose by duplication of a ProtoHox gene cluster. Furthermore, we show that amphioxus ParaHox genes have co-linear developmental expression patterns in anterior, middle and posterior tissues. We propose that the origin of distinct Hox and ParaHox genes by gene-cluster duplication facilitated an increase in body complexity during the Cambrian explosion.