We present a time-resolved spectral analysis of the bright, long GRB 061007 (z= 1.261) using Swift and Suzaku data. We find that the prompt emission of the burst can be equally well explained by a photospheric component together with a power law as by a Band function, and we explore the implications of the former model. The photospheric component, which we model with a multicolour blackbody, dominates the spectra and has a very stable shape throughout the burst. This component provides a natural explanation for the hardness–intensity correlation seen within the burst and also allows us to estimate the bulk Lorentz factor and the radius of the photosphere. The power-law component dominates the fit at high energies and has a nearly constant slope of −1.5. We discuss the possibility that this component is of the same origin as the high-energy power laws recently observed in some Fermi bursts.