The phylum of annelids is one of the most disparate animal phyla and encompasses ambush predators, suspension feeders and terrestrial earthworms(1). The early evolution of annelids remains obscure or controversial(2,3), partly owing to discordance between molecular phylogenies and fossils(2,4). Annelid fossils from the Cambrian period have morphologies that indicate epibenthic lifestyles, whereas phylogenomics recovers sessile, infaunal and tubicolous taxa as an early diverging grade(5). Magelonidae and Oweniidae (Palaeoannelida1) are the sister group of all other annelids but contrast with Cambrian taxa in both lifestyle and gross morphology(2,6). Here we describe a new fossil polychaete (bristle worm) from the early Cambrian Canglangpu formation(7) that we name Dannychaeta tucolus, which is preserved within delicate, dwelling tubes that were originally organic. The head has a well-defined spade-shaped prostomium with elongated ventrolateral palps. The body has a wide, stout thorax and elongated abdomen with biramous parapodia with parapodial lamellae. This character combination is shared with extant Magelonidae, and phylogenetic analyses recover Dannychaeta within Palaeoannelida. To our knowledge, Dannychaeta is the oldest polychaete that unambiguously belongs to crown annelids, providing a constraint on the tempo of annelid evolution and revealing unrecognized ecological and morphological diversity in ancient annelids.