Caobangiids are an aberrant group of annelids with an unusual phoronid-like body plan. The most perceptible anatomical characteristic of caobangiids is the anal trunk, which is recurved outside the body and ends with an anal opening located near the head. So far neither the larval development nor the metamorphosis of these worms have been investigated thoroughly. This study describes the larval development and metamorphosis of Caobangia billeti, and focuses mainly on the formation of the alimentary tract. The trochophore has eight chaetigers. Embryogenesis includes the development of segmentally arranged bands of cilia and ventral ciliary fields, the development of chaetae and the early formation of anterior radioles. Upon exiting the larval duct, larvae have eyes with lenses, two pairs of rudimentary radioles on the prostomium, a pair of nephridia on the peristomium, and two capillary chaetae in each parapodium of segments 3–9; parapodia of the 10th segment also bear a row of palmate hooks. Metamorphosis takes about 20 h and involves dorso-ventral folding of the body and enlargement of the pygidium along the dorsal side of segments 5–8. Thus, the anus develops on the dorsal side of the 5th segment, the anal trunk forms from the projection of pygidium whereas the prepygidial growth zone appears posterior to the 8th body segment. After the completion of metamorphosis, the prostomial and peristomial segments are fused and reduced, eight full thoracic chaetigers derive from the larva's body. Abdominal chaetigers grow posteriorly from the prepygidial growth zone.