Members of the fungal genus Armillaria are necrotrophic pathogens with efficient plant biomass-degrading strategies. The genus includes some of the largest terrestrial organisms on Earth, spreading underground and causing tremendous losses in diverse ecosystems. Despite their global importance, the mechanism by which Armillaria evolved pathogenicity in a clade of dominantly non-pathogenic wood-degraders (Agaricales) remains elusive. Here, using new genomic data, we show that Armillaria species, in addition to widespread gene duplications and de novo gene origins, appear to have at least 775 genes that were acquired via 101 horizontal gene transfer (HGT) events, primarily from Ascomycota. Functional and expression data suggest that HGT might have affected plant biomass-degrading and virulence abilities of Armillaria, two pivotal traits in their lifestyle. We further assayed gene expression during root and cambium colonization, and report putative virulence factors, extensive regulation of horizontally acquired and wood-decay related genes as well as novel pathogenicity-induced small secreted proteins (PiSSPs). Two PiSSPs induced necrosis in live plants, suggesting they are potential virulence effectors conserved across Armillaria. Overall, this study details how evolution knitted together horizontally and vertically inherited genes in complex adaptive traits, such as plant biomass degradation and pathogenicity, paving the way for development of infection models for one of the most influential pathogens of temperate forest ecosystems.