Marine sponges often house small-molecule-producing symbionts extracellularly in their mesohyl, providing the host with a means of chemical defence against predation and microbial infection. Here, we report an intriguing case of chemically mediated symbiosis between the renieramycin-containing sponge Haliclona sp. and its herein discovered renieramycin-producing symbiont Candidatus Endohaliclona renieramycinifaciens. Remarkably, Ca. E. renieramycinifaciens has undergone extreme genome reduction where it has lost almost all necessary elements for free living while maintaining a complex, multi-copy plasmid-encoded biosynthetic gene cluster for renieramycin biosynthesis. In return, the sponge houses Ca. E. renieramycinifaciens in previously uncharacterized cellular reservoirs (chemobacteriocytes), where it can acquire nutrients from the host and avoid bacterial competition. This relationship is highly specific to a single clade of Haliclona sponges. Our study reveals intracellular symbionts as an understudied source for defence chemicals in the oldest-living metazoans and paves the way towards discovering similar systems in other marine sponges.