Explaining the diversity of gene repertoires has been a major problem in modern evolutionary biology. In eukaryotes, this diversity is believed to result mainly from gene duplication and loss, but in prokaryotes, lateral gene transfer (LGT) can also contribute substantially to genome contents. To determine the histories of gene inventories, we conducted an exhaustive analysis of gene phylogenies for all gene families in a widely sampled group, the gamma-Proteobacteria. We show that, although these bacterial genomes display striking differences in gene repertoires, most gene families having representatives in several species have congruent histories. Other than the few vast multigene families, gene duplication has contributed relatively little to the contents of these genomes; instead, LGT, over time, provides most of the diversity in genomic repertoires. Most such acquired genes are lost, but the majority of those that persist in genomes are transmitted strictly vertically. Although our analyses are limited to the gamma-Proteobacteria, these results resolve a long-standing paradox-i.e., the ability to make robust phylogenetic inferences in light of substantial LGT.