Recent studies reveal correlation between microRNA (miRNA) innovation and increased developmental complexity. This is exemplified by dramatic expansion of the miRNA inventory in vertebrates, a lineage where genome duplication has played a significant evolutionary role. Urochordates, the closest extant group to the vertebrates, exhibit an opposite trend to genome and morphological simplification. We show that the urochordate, larvacean, Oikopleura dioica, possesses the requisite miRNA biogenic machinery. The miRNAs isolated by small RNA cloning were expressed throughout the short life cycle, a number of which were stocked as maternal determinants prior to rapid embryonic development. We identify sex-specific miRNAs that appeared as male/female gonad differentiation became apparent and were maintained throughout spermatogenesis. Whereas 80% of mammalian miRNAs are hosted in introns of protein-coding genes, the majority of O. dioica miRNA loci were located in antisense orientations to such genes. Including sister group ascidians in analysis of the urochordate miRNA repertoire, we find that 11 highly conserved bilaterian miRNA families have been lost or derived to the point they are not recognizable in urochordates and a further 4 of these families are absent in larvaceans. Subsequent to this loss/derivation, at least 29 novel miRNA families have been acquired in larvaceans. This suggests a profound reorganization of the miRNA repertoire integral to evolution in the urochordate lineage.