What are the evolutionary and ecological forces that shape viral evolution in symbiotic bacteria? We ask this question in light of the long-standing demarcation that free-living bacteria have been profoundly affected by phages, while obligate intracellular bacteria frequently lack phages owing to reductive genome evolution and their confined intracellular niche. To the contrary, our studies show that temperate bacteriophage WO in arthropod Wolbachia is widespread, rampantly transfers between bacterial coinfections of the same arthropod host, alters the densities and major symbiotic phenotypes of Wolbachia, and carries eukaryotic-like genes. Gene sharing between bacteriophages and eukaryotic hosts has not been previously reported, and it curiously mirrors adaptive processes in eukaryotic viruses that coopt genes for host immune evasion and cell apoptosis. Phage WO evolution and genomics appear to be unique byproducts of evolutionary pressures operating on a virus that survives and traverses a "two-fold cell challenge", namely that of its primary bacterial host and the secondary eukaryotic host that surrounds the bacteria. In addition to phage WO illuminating viral biology in obligate intracellular bacteria, recent studies of phage WO lysis genes also serendipitously led to the discovery of the first antibiotic gene in Archaea.