BACKGROUND: Evolutionary studies benefit from deep sequencing technologies that generate genomic and transcriptomic sequences from a variety of organisms. Genome sequencing and RNAseq have complementary strengths. In this study, we present the assembly of the most complete Hydra transcriptome to date along with a comparative analysis of the specific features of RNAseq and genome-predicted transcriptomes currently available in the freshwater hydrozoan Hydra vulgaris. RESULTS: To produce an accurate and extensive Hydra transcriptome, we combined Illumina and 454 Titanium reads, giving the primacy to Illumina over 454 reads to correct homopolymer errors. This strategy yielded an RNAseq transcriptome that contains 48'909 unique sequences including splice variants, representing approximately 24'450 distinct genes. Comparative analysis to the available genome-predicted transcriptomes identified 10'597 novel Hydra transcripts that encode 529 evolutionarily-conserved proteins. The annotation of 170 human orthologs points to critical functions in protein biosynthesis, FGF and TOR signaling, vesicle transport, immunity, cell cycle regulation, cell death, mitochondrial metabolism, transcription and chromatin regulation. However, a majority of these novel transcripts encodes short ORFs, at least 767 of them corresponding to pseudogenes. This RNAseq transcriptome also lacks 11'270 predicted transcripts that correspond either to silent genes or to genes expressed below the detection level of this study. CONCLUSIONS: We established a simple and powerful strategy to combine Illumina and 454 reads and we produced, with genome assistance, an extensive and accurate Hydra transcriptome. The comparative analysis of the RNAseq transcriptome with genome-predicted transcriptomes lead to the identification of large populations of novel as well as missing transcripts that might reflect Hydra-specific evolutionary events.