The freshwater sponge Ephydatia muelleri and its Chlorella-like algal partner is an emerging model for studying animal: algal endosymbiosis. The sponge host is a tractable laboratory organism, and the symbiotic algae are easily cultured. We took advantage of these traits to interrogate questions about mechanisms that govern the establishment of durable intracellular partnerships between hosts and symbionts in facultative symbioses. We modified a classical experimental approach to discern the phagocytotic mechanisms that might be co-opted to permit persistent infections, and identified genes differentially expressed in sponges early in the establishment of endosymbiosis. We exposed algal-free E. muelleri to live native algal symbionts and potential food items (bacteria and native heat-killed algae), and performed RNA-Seq to compare patterns of gene expression among treatments. We found a relatively small but interesting suite of genes that are differentially expressed in the host exposed to live algal symbionts, and a larger number of genes triggered by host exposure to heat-killed algae. The upregulated genes in sponges exposed to live algal symbionts were mostly involved in endocytosis, ion transport, metabolic processes, vesicle-mediated transport, and oxidation–reduction. One of the host genes, an ATP-Binding Cassette transporter that is downregulated in response to live algal symbionts, was further evaluated for its possible role in the establishment of the symbiosis. We discuss the gene expression profiles associated with host responses to living algal cells in the context of conditions necessary for long-term residency within host cells by phototrophic symbionts as well as the genetic responses to sponge phagocytosis and immune-driven pathways.