The colonization of land by plants was a key event in the evolution of life. Here we report the draft genome sequence of the filamentous terrestrial alga Klebsormidium flaccidum (Division Charophyta, Order Klebsormidiales) to elucidate the early transition step from aquatic algae to land plants. Comparison of the genome sequence with that of other algae and land plants demonstrate that K. flaccidum acquired many genes specific to land plants. We demonstrate that K. flaccidum indeed produces several plant hormones and homologues of some of the signalling intermediates required for hormone actions in higher plants. The K. flaccidum genome also encodes a primitive system to protect against the harmful effects of high-intensity light. The presence of these plant-related systems in K. flaccidum suggests that, during evolution, this alga acquired the fundamental machinery required for adaptation to terrestrial environments.