Mud dragons (Kinorhyncha) are microscopic invertebrates, inhabiting marine sediments across the globe from intertidal to hadal depths. They are segmented, moulting animals like arthropods, but grouping with the unsegmented priapulans and loriciferans within Ecdysozoa. There are more than 300 species of kinorhynchs described within 31 genera and 11 families, however, their evolutionary relationships have so far only been investigated using morphology and a few molecular markers. Here we aim to resolve the relationships and classification of major clades within Kinorhyncha using transcriptomic data. In addition, we wish to revisit the position of three indistinctly segmented, aberrant genera in order to reconstruct the evolution of distinct segmentation within the group. We conducted a phylogenomic analysis of Kinorhyncha including 21 kinorhynch transcriptomes (of which 18 are new) representing 15 genera, and seven outgroups including priapulan, loriciferan, nematode and nematomorph transcriptomes. Results show a congruent and robust tree that supports the division of Kinorhyncha into two major clades: Cyclorhagida and Allomalorhagida. Cyclorhagida is composed of three subclades: Xenosomata, Kentrorhagata comb. nov. (including the aberrant Zelinkaderes) and Echinorhagata. Allomalorhagida is composed of two subclades: Pycnophyidae and Anomoirhaga nom. nov. Anomoirhaga nom. nov. accommodates the aberrant genera Cateria (previously nested within Cyclorhagida) and Franciscideres together with five additional genera. The distant and derived positions of the aberrant Zelinkaderes, Cateria and Franciscideres species suggest that their less distinct trunk segmentation evolved convergently, and that segmentation evolved among kinorhynch stem groups.