BACKGROUND. The 1.83 Megabase (Mb) sequence of the Haemophilus influenzae chromosome, the first completed genome sequence of a cellular life form, has been recently reported. Approximately 75 % of the 4.7 Mb genome sequence of Escherichia coli is also available. The life styles of the two bacteria are very different - H. influenzae is an obligate parasite that lives in human upper respiratory mucosa and can be cultivated only on rich media, whereas E. coli is a saprophyte that can grow on minimal media. A detailed comparison of the protein products encoded by these two genomes is expected to provide valuable insights into bacterial cell physiology and genome evolution. RESULTS. We describe the results of computer analysis of the amino-acid sequences of 1703 putative proteins encoded by the complete genome of H. influenzae. We detected sequence similarity to proteins in current databases for 92 % of the H. influenzae protein sequences, and at least a general functional prediction was possible for 83 %. A comparison of the H. influenzae protein sequences with those of 3010 proteins encoded by the sequenced 75 % of the E. coli genome revealed 1128 pairs of apparent orthologs, with an average of 59 % identity. In contrast to the high similarity between orthologs, the genome organization and the functional repertoire of genes in the two bacteria were remarkably different. The smaller genome size of H. influenzae is explained, to a large extent, by a reduction in the number of paralogous genes. There was no long range colinearity between the E. coli and H. influenzae gene orders, but over 70 % of the orthologous genes were found in short conserved strings, only about half of which were operons in E. coli. Superposition of the H. influenzae enzyme repertoire upon the known E. coli metabolic pathways allowed us to reconstruct similar and alternative pathways in H. influenzae and provides an explanation for the known nutritional requirements. CONCLUSIONS. By comparing proteins encoded by the two bacterial genomes, we have shown that extensive gene shuffling and variation in the extent of gene paralogy are major trends in bacterial evolution; this comparison has also allowed us to deduce crucial aspects of the largely uncharacterized metabolism of H. influenzae.