A key problem in understanding deuterostome evolution has been the origin of the chordate body plan. A biphasic life cycle with a sessile adult and a free-swimming larva is traditionally considered ancestral in chordates with subsequent neotenic loss of the sessile adult stage. Molecular phylogenies challenged this view, suggesting that the primitive life cycle in chordates was entirely free-living as in modern day larvaceans. Here, we report the precise cell lineage and fate map in the normal embryo of the larvacean
Oikopleura dioica
, using 4D microscopy technique and transmission electron microscopy. We document the extraordinary rapidity of cleavage and morphogenetic events until hatching and demonstrate that—compared with ascidians—fate restriction occurs considerably earlier in
O. dioica
and that clonal organization of the cell lineage is more tightly coupled to tissue fate. We show that epidermal cells in the trunk migrate through 90°, reminiscent of events in ascidian metamorphosis and that the axis of bilateral symmetry in the tail rotates in relation to the trunk. We argue that part of the tail muscle cells are ectomesodermal, because they are more closely associated with prospective epidermis than with other tissues in the cell lineage. Cladistic comparison with other deuterostomes suggests that these traits are derived within tunicates strengthening the hypothesis that the last common ancestor of tunicates had a sessile adult and thus support traditional morphology-derived scenarios. Our results allow hypothesizing that molecular developmental mechanisms known from ascidian models are restricted to fewer, yet identifiable, cells in
O. dioica
.