Toxoplasma gondii is a zoonotic protozoan parasite which infects nearly one third of the human population and is found in an extraordinary range of vertebrate hosts. Its epidemiology depends heavily on horizontal transmission, especially between rodents and its definitive host, the cat. Neospora caninum is a recently discovered close relative of Toxoplasma, whose definitive host is the dog. Both species are tissue-dwelling Coccidia and members of the phylum Apicomplexa; they share many common features, but Neospora neither infects humans nor shares the same wide host range as Toxoplasma, rather it shows a striking preference for highly efficient vertical transmission in cattle. These species therefore provide a remarkable opportunity to investigate mechanisms of host restriction, transmission strategies, virulence and zoonotic potential. We sequenced the genome of N. caninum and transcriptomes of the invasive stage of both species, undertaking an extensive comparative genomics and transcriptomics analysis. We estimate that these organisms diverged from their common ancestor around 28 million years ago and find that both genomes and gene expression are remarkably conserved. However, in N. caninum we identified an unexpected expansion of surface antigen gene families and the divergence of secreted virulence factors, including rhoptry kinases. Specifically we show that the rhoptry kinase ROP18 is pseudogenised in N. caninum and that, as a possible consequence, Neospora is unable to phosphorylate host immunity-related GTPases, as Toxoplasma does. This defense strategy is thought to be key to virulence in Toxoplasma. We conclude that the ecological niches occupied by these species are influenced by a relatively small number of gene products which operate at the host-parasite interface and that the dominance of vertical transmission in N. caninum may be associated with the evolution of reduced virulence in this species.