Abstract Background Standard archival sequence databases have not been designed as tools for genome annotation and are far from being optimal for this purpose. We used the database of Clusters of Orthologous Groups of proteins (COGs) to reannotate the genomes of two archaea, Aeropyrum pernix , the first member of the Crenarchaea to be sequenced, and Pyrococcus abyssi . Results A. pernix and P. abyssi proteins were assigned to COGs using the COGNITOR program; the results were verified on a case-by-case basis and augmented by additional database searches using the PSI-BLAST and TBLASTN programs. Functions were predicted for over 300 proteins from A. pernix , which could not be assigned a function using conventional methods with a conservative sequence similarity threshold, an approximately 50% increase compared to the original annotation. A. pernix shares most of the conserved core of proteins that were previously identified in the Euryarchaeota. Cluster analysis or distance matrix tree construction based on the co-occurrence of genomes in COGs showed that A. pernix forms a distinct group within the archaea, although grouping with the two species of Pyrococci, indicative of similar repertoires of conserved genes, was observed. No indication of a specific relationship between Crenarchaeota and eukaryotes was obtained in these analyses. Several proteins that are conserved in Euryarchaeota and most bacteria are unexpectedly missing in A. pernix , including the entire set of de novo purine biosynthesis enzymes, the GTPase FtsZ (a key component of the bacterial and euryarchaeal cell-division machinery), and the tRNA-specific pseudouridine synthase, previously considered universal. A. pernix is represented in 48 COGs that do not contain any euryarchaeal members. Many of these proteins are TCA cycle and electron transport chain enzymes, reflecting the aerobic lifestyle of A. pernix. Conclusions Special-purpose databases organized on the basis of phylogenetic analysis and carefully curated with respect to known and predicted protein functions provide for a significant improvement in genome annotation. A differential genome display approach helps in a systematic investigation of common and distinct features of gene repertoires and in some cases reveals unexpected connections that may be indicative of functional similarities between phylogenetically distant organisms and of lateral gene exchange.