Choanoflagellates are single-celled aquatic flagellates with a unique morphology consisting of a cell with a single flagellum surrounded by a "collar" of microvilli. They have long interested evolutionary biologists because of their striking resemblance to the collared cells (choanocytes) of sponges. Molecular phylogeny has confirmed a close relationship between choanoflagellates and Metazoa, and the first choanoflagellate genome sequence has recently been published. However, molecular phylogenetic studies within choanoflagellates are still extremely limited. Thus, little is known about choanoflagellate evolution or the exact nature of the relationship between choanoflagellates and Metazoa. We have sequenced four genes from a broad sampling of the morphological diversity of choanoflagellates including most species currently available in culture. Phylogenetic analyses of these sequences, alone and in combination, reject much of the traditional taxonomy of the group. The molecular data also strongly support choanoflagellate monophyly rejecting proposals that Metazoa were derived from a true choanoflagellate ancestor. Mapping of a complementary matrix of morphological and ecological traits onto the phylogeny allows a reinterpretation of choanoflagellate character evolution and predicts the nature of their last common ancestor.