Microbes with smaller genomes would be better chassis for analysis, design, and improvement in the fields of metabolic engineering, synthetic biology, and molecular breeding. To create an Escherichia coli strain with a smaller genome, we used a stepwise genome reduction approach. Beginning with strain MGF-01, which has a genome of 3.62 megabase pairs (Mbp), we generated two E. coil K-12 strains without any insertion sequence (IS), DGF-327 and DGF-298, with reduced genome sizes of 3.27 and 2.98 Mbp, respectively. During the strain construction, intrinsic mutations of ilvG and rph were functionally restored to accelerate initial growth after inoculation. The genomes of the two strains were sequenced, and their structures were confirmed. Both strains showed no auxotrophy, and had better growth fitness, especially in the initial phase, and better cell yield in a rich medium than the wild type K-12 strain. Transcriptome analysis revealed that ibpAB and Ion, which encode a heat-shock chaperone and a protease for abnormal proteins, respectively, are down-regulated in DGF strains, compared to the ancestral strains with larger genomes. We concluded that down-regulation of the genes encoding chaperones and proteases is one of the factors that improve the fitness of DGF strains. The DGF strains with fewer genes and better cell yield will be good hosts for applications. (C) 2013, The Society for Biotechnology, Japan. All rights reserved.