In this paper we present a de novo assembly of the transcriptome of the damselfly ( Enallagma hageni) through the use of 454 pyrosequencing. E. hageni is a member of the suborder Zygoptera, in the order Odonata, and Odonata organisms form the basal lineage of the winged insects (Pterygota). To date, sequence data used in phylogenetic analysis of Enallagma species have been derived from either mitochondrial DNA or ribosomal nuclear DNA. This Enallagma transcriptome contained 31,661 contigs that were assembled and translated into 14,813 individual open reading frames. Using these data, we constructed an extensive dataset of 634 orthologous nuclear protein-encoding genes across 11 species of Arthropoda and used Bayesian techniques to elucidate the position of Enallagma in the arthropod phylogenetic tree. Additionally, we demonstrated that the Enallagma transcriptome contains 169 genes that are evolving at rates that differ relative to those of the rest of the transcriptome (29 accelerated and 140 decreased), and, through multiple Gene Ontology searches and clustering methods, we present the first functional annotation of any palaeopteran’s transcriptome in the literature.