The three-domain proposal of Woese et al. (Proc. Natl. Acad. Sci. USA 87, 4576 (1990)) divides all living organisms into three primary groups or domains named Archaea (or archaebacteria), Bacteria (or eubacteria), and Eucarya (or eukaryotes), with Eucarya being relatives (or descendants) of Archaea. Although this proposal is currently widely accepted, sequence features and phylogenies derived from many highly conserved proteins are inconsistent with it and point to a close and specific relationship between archaebacteria and gram-positive bacteria, whereas gram-negative bacteria are indicated to be phylogenetically distinct. A closer relationship of archaebacteria to gram-positive bacteria in comparison to gram-negative bacteria is generally seen for the majority of the available gene/protein sequences. To account for these results, and the fact that both archaebacteria and gram-positive bacteria are prokaryotes surrounded by a single cell membrane, I propose that the primary division within prokaryotes is between Monoderm prokaryotes (surrounded by a single membrane) and Diderm prokaryotes (i.e., all true gram-negative bacteria containing both an inner cytoplasmic membrane and an outer membrane). This proposal is consistent with both cell morphology and signature sequences in different proteins. Protein phylogenies and signature sequences also show that all eukaryotic cells have received significant gene contributions from both an archaebacterium and a gram- negative eubacterium. Thus, the hypothesis that archaebacteria and eukaryotes shared a common ancestor exclusive of eubacteria, or that the ancestral eukaryotic cell directly descended from an archaea, is erroneous. These results call into question the validity of the currently popular three-domain proposal and the assignment of a domain status to archaebacteria. A new classifica- tion of organisms consistent with phenotype and macromolecular sequence data is proposed.