Benthic annelids belonging to the family Syllidae (Errantia, Phyllodocida) exhibit a unique reproduction mode called “schizogamy” or “stolonization”, in which the posterior body part filled with gametes detaches from the original body, as a reproductive unit (stolon) that autonomously swims and spawns. In this study, detailed developmental processes during stolonization were morphologically/histologically observed in Megasyllis nipponica. The results suggest that the stolon formation started with maturation of gonads, followed by the formation of a head ganglion in the anteriormost segment of the developing stolon. Then, the detailed stolon-specific structures such as stolon eyes and notochaetae were formed. Furthermore, expression profiles of genes involved in the anterior-posterior identity (Hox genes), head identification, germ-line, and hormone regulation were compared between anterior and posterior body parts during the stolonization process. The results reveal that, in the posterior body part, genes for gonadal development were up-regulated, followed by hormone-related genes and head-identification genes. Unexpectedly, Hox genes known to identify body parts along the anterior-posterior axis showed no significant temporal expression changes. Taken together, these findings suggest that during stolonization, gonad development induces the head formation of a stolon, without up-regulation of anterior Hox genes.