We discuss the cosmological simulation code GADGET-2, a new massively parallel TreeSPH code, capable of following a collisionless fluid with the N-body method, and an ideal gas by means of smoothed particle hydrodynamics (SPH). Our implementation of SPH manifestly conserves energy and entropy in regions free of dissipation, while allowing for fully adaptive smoothing lengths. Gravitational forces are computed with a hierarchical multipole expansion, which can optionally be applied in the form of a TreePM algorithm, where only short-range forces are computed with the `tree'-method while long-range forces are determined with Fourier techniques. Time integration is based on a quasi-symplectic scheme where long-range and short-range forces can be integrated with different timesteps. Individual and adaptive short-range timesteps may also be employed. The domain decomposition used in the parallelisation algorithm is based on a space-filling curve, resulting in high flexibility and tree force errors that do not depend on the way the domains are cut. The code is efficient in terms of memory consumption and required communication bandwidth. It has been used to compute the first cosmological N-body simulation with more than 10^10 dark matter particles, reaching a homogeneous spatial dynamic range of 10^5 per dimension in a 3D box. It has also been used to carry out very large cosmological SPH simulations that account for radiative cooling and star formation, reaching total particle numbers of more than 250 million. We present the algorithms used by the code and discuss their accuracy and performance using a number of test problems. GADGET-2 is publicly released to the research community.