Using microarray-based comparative genome hybridization (mCGH), the genomic content of Wolbachia pipientis wMel from Drosophila melanogaster was compared to the closely related Wolbachia from D. innubila (wInn), D. santomea (wSan), and three strains from D. simulans (wAu, wRi, wSim). A large number of auxiliary genes are identified in these five strains, with most absent/divergent genes being unique to a given strain. Each strain caused an average of approximately 60 genes to be removed from the core genome. As such, these organisms do not appear to have the streamlined genomes expected of obligate intracellular bacteria. Prophage, hypothetical and ankyrin repeat genes are over-represented in the absent/divergent genes, with 21-87% of absent/divergent genes coming from prophage regions. The only wMel region absent/divergent in all five query strains is that containing WD_0509 to WD_0511, including a DNA mismatch repair protein MutL-2, a degenerate RNase, and a conserved hypothetical protein. A region flanked by the two portions of the WO-B prophage in wMel is found in four of the five Wolbachia strains as well as on a plasmid of a rickettsial endosymbiont of Ixodes scapularis, suggesting lateral gene transfer between these two obligate intracellular species. Overall, these insect-associated Wolbachia have highly mosaic genomes, with lateral gene transfer playing an important role in their diversity and evolution.