Staphylococcus aureus is an important nosocomial and community-acquired pathogen. Its genetic plasticity has facilitated the evolution of many virulent and drug-resistant strains, presenting a major and constantly changing clinical challenge. We sequenced the approximately 2.8-Mbp genomes of two disease-causing S. aureus strains isolated from distinct clinical settings: a recent hospital-acquired representative of the epidemic methicillin-resistant S. aureus EMRSA-16 clone (MRSA252), a clinically important and globally prevalent lineage; and a representative of an invasive community-acquired methicillin-susceptible S. aureus clone (MSSA476). A comparative-genomics approach was used to explore the mechanisms of evolution of clinically important S. aureus genomes and to identify regions affecting virulence and drug resistance. The genome sequences of MRSA252 and MSSA476 have a well conserved core region but differ markedly in their accessory genetic elements. MRSA252 is the most genetically diverse S. aureus strain sequenced to date: approximately 6% of the genome is novel compared with other published genomes, and it contains several unique genetic elements. MSSA476 is methicillin-susceptible, but it contains a novel Staphylococcal chromosomal cassette (SCC) mec-like element (designated SCC(476)), which is integrated at the same site on the chromosome as SCCmec elements in MRSA strains but encodes a putative fusidic acid resistance protein. The crucial role that accessory elements play in the rapid evolution of S. aureus is clearly illustrated by comparing the MSSA476 genome with that of an extremely closely related MRSA community-acquired strain; the differential distribution of large mobile elements carrying virulence and drug-resistance determinants may be responsible for the clinically important phenotypic differences in these strains.