Sponges can be dominant organisms in many marine and freshwater habitats where they play essential ecological roles. They also represent a key group to address important questions in early metazoan evolution. Recent approaches for improving knowledge on sponge biological and ecological functions as well as on animal evolution have focused on the genetic toolkits involved in ecological responses to environmental changes (biotic and abiotic), development and reproduction. These approaches are possible thanks to newly available, massive sequencing technologies–such as the Illumina platform, which facilitate genome and transcriptome sequencing in a cost-effective manner. Here we present the first NGS (next-generation sequencing) approach to understanding the life cycle of an encrusting marine sponge. For this we sequenced libraries of three different life cycle stages of the Mediterranean sponge Crella elegans and generated de novo transcriptome assemblies. Three assemblies were based on sponge tissue of a particular life cycle stage, including non-reproductive tissue, tissue with sperm cysts and tissue with larvae. The fourth assembly pooled the data from all three stages. By aggregating data from all the different life cycle stages we obtained a higher total number of contigs, contigs with blast hit and annotated contigs than from one stage-based assemblies. In that multi-stage assembly we obtained a larger number of the developmental regulatory genes known for metazoans than in any other assembly. We also advance the differential expression of selected genes in the three life cycle stages to explore the potential of RNA-seq for improving knowledge on functional processes along the sponge life cycle.