Abstract Dinoflagellates in the family Symbiodiniaceae are taxonomically diverse, predominantly symbiotic lineages that are well-known for their association with corals. The ancestor of these taxa is believed to have been free-living. The establishment of symbiosis (i.e. symbiogenesis) is hypothesized to have occurred multiple times during Symbiodiniaceae evolution, but its impact on genome evolution of these taxa is largely unknown. Among Symbiodiniaceae, the genus Effrenium is a free-living lineage that is phylogenetically positioned between two robustly supported groups of genera within which symbiotic taxa have emerged. The apparent lack of symbiogenesis in Effrenium suggests that the ancestral features of Symbiodiniaceae may have been retained in this lineage. Here, we present de novo assembled genomes (1.2–1.9 Gbp in size) and transcriptome data from three isolates of Effrenium voratum and conduct a comparative analysis that includes 16 Symbiodiniaceae taxa and the other dinoflagellates. Surprisingly, we find that genome reduction, which is often associated with a symbiotic lifestyle, predates the origin of Symbiodiniaceae. The free-living lifestyle distinguishes Effrenium from symbiotic Symbiodiniaceae vis-à-vis their longer introns, more-extensive mRNA editing, fewer (~30%) lineage-specific gene sets, and lower (~10%) level of pseudogenization. These results demonstrate how genome reduction and the adaptation to distinct lifestyles intersect to drive diversification and genome evolution of Symbiodiniaceae.