Microsporidia are intracellular parasites that all possess a unique infection apparatus involving a polar tube. Upon contact with a host cell, this tube forms the conduit through which the parasite enters the host. Infecting mostly animals, microsporidian species can be transmitted vertically or horizontally, and exert various effects on their hosts: infections range from being relatively benign to lethal. Microsporidian genomes possess highly divergent sequences and are often substantially reduced in size. Their divergent sequences and unique morphology created early challenges to our understanding of their phylogenetic position within the tree of eukaryotes. Over the last couple of decades, advances in both sequencing technology and phylogenetic methodology supported a clear relationship between microsporidia and fungi. However, the specifics of this relationship were muddied by the lack of known microsporidian relatives. With increased taxon discovery and the morphological and molecular characterization of microsporidia‐like taxa, rozellids and aphelids, a better resolved picture is emerging. Here we review the history of microsporidian taxonomy and current status of genomics of microsporidia and their nearest relatives, with an aim to understand their morphological and metabolic differences, along with their evolutionary relationships.