The exquisite preservation of soft-bodied animals in Burgess Shale-type deposits provides important clues into the early evolution of body plans that emerged during the Cambrian explosion. Until now, such deposits have remained silent regarding the early evolution of extant molluscan lineages-in particular the cephalopods. Nautiloids, traditionally considered basal within the cephalopods, are generally depicted as evolving from a creeping Cambrian ancestor whose dorsal shell afforded protection and buoyancy. Although nautiloid-like shells occur from the Late Cambrian onwards, the fossil record provides little constraint on this model, or indeed on the early evolution of cephalopods. Here, we reinterpret the problematic Middle Cambrian animal Nectocaris pteryx as a primitive (that is, stem-group), non-mineralized cephalopod, based on new material from the Burgess Shale. Together with Nectocaris, the problematic Lower Cambrian taxa Petalilium and (probably) Vetustovermis form a distinctive clade, Nectocarididae, characterized by an open axial cavity with paired gills, wide lateral fins, a single pair of long, prehensile tentacles, a pair of non-faceted eyes on short stalks, and a large, flexible anterior funnel. This clade extends the cephalopods' fossil record by over 30 million years, and indicates that primitive cephalopods lacked a mineralized shell, were hyperbenthic, and were presumably carnivorous. The presence of a funnel suggests that jet propulsion evolved in cephalopods before the acquisition of a shell. The explosive diversification of mineralized cephalopods in the Ordovician may have an understated Cambrian `fuse'.