Mechanisms for the biparental transmission of microbial symbionts to offspring in the marine sponge Chondrilla australiensis are reported. The observation of microbial mutualists in the sperm of C. australiensis is the first report of this kind in any organism, as far as we are aware. The developing eggs were shown by transmission electron microscopy (TEM) to incorporate intercellular cyanobacterial and bacterial symbionts. Nurse cells appeared to transport cyanobacterial symbionts from the surface layers of the sponge to eggs deeper in the matrix, where they were incorporated into the egg cytoplasm prior to spawning. This suggests that a host mechanism exists to actively recognise and incorporate symbionts, ensuring that larvae contain these mutualists before settlement. In addition, an average of 1.64% of mature sperm of C. australiensis contained cyanobacterial symbionts in their cytoplasm. The successful transmission of cyanobacterial symbionts to larvae was demonstrated by autofluorescent microscopy and TEM. The occurrence of organisms with functional mechanisms for transmission of symbionts from both parents to offspring provides the potential for new insights into the nature of host-symbiont interactions.