Rathayibacter toxicus is a species of Gram-positive, corynetoxin-producing bacteria that causes annual ryegrass toxicity, a disease often fatal to grazing animals. A phylogenomic approach was employed to model the evolution of R. toxicus to explain the low genetic diversity observed among isolates collected during a 30-year period of sampling in three regions of Australia, gain insight into the taxonomy of Rathayibacter, and provide a framework for studying these bacteria. Analyses of a data set of more than 100 sequenced Rathayibacter genomes indicated that Rathayibacter forms nine species-level groups. R. toxicus is the most genetically distant, and evidence suggested that this species experienced a dramatic event in its evolution. Its genome is significantly reduced in size but is colinear to those of sister species. Moreover, R. toxicus has low intergroup genomic diversity and almost no intragroup genomic diversity between ecologically separated isolates. R. toxicus is the only species of the genus that encodes a clustered regularly interspaced short palindromic repeat (CRISPR) locus and that is known to host a bacteriophage parasite. The spacers, which represent a chronological history of infections, were characterized for information on past events. We propose a three-stage process that emphasizes the importance of the bacteriophage and CRISPR in the genome reduction and low genetic diversity of the R. toxicus species.IMPORTANCERathayibacter toxicus is a toxin-producing species found in Australia and is often fatal to grazing animals. The threat of introduction of the species into the United States led to its inclusion in the Federal Select Agent Program, which makes R. toxicus a highly regulated species. This work provides novel insights into the evolution of R. toxicusR. toxicus is the only species in the genus to have acquired a CRISPR adaptive immune system to protect against bacteriophages. Results suggest that coexistence with the bacteriophage NCPPB3778 led to the massive shrinkage of the R. toxicus genome, species divergence, and the maintenance of low genetic diversity in extant bacterial groups. This work contributes to an understanding of the evolution and ecology of an agriculturally important species of bacteria. Copyright © 2018 Davis et al.