Reciprocal coevolution between host and pathogen is widely seen as a major driver of evolution and biological innovation. Yet, to date, the underlying genetic mechanisms and associated trait functions that are unique to rapid coevolutionary change are generally unknown. We here combined experimental evolution of the bacterial biocontrol agent Bacillus thuringiensis and its nematode host Caenorhabditis elegans with large-scale phenotyping, whole genome analysis, and functional genetics to demonstrate the selective benefit of pathogen virulence and the underlying toxin genes during the adaptation process. We show that: (i) high virulence was specifically favoured during pathogen-host coevolution rather than pathogen one-sided adaptation to a nonchanging host or to an environment without host; (ii) the pathogen genotype BT-679 with known nematocidal toxin genes and high virulence specifically swept to fixation in all of the independent replicate populations under coevolution but only some under one-sided adaptation; (iii) high virulence in the BT-679-dominated populations correlated with elevated copy numbers of the plasmid containing the nematocidal toxin genes; (iv) loss of virulence in a toxin-plasmid lacking BT-679 isolate was reconstituted by genetic reintroduction or external addition of the toxins. We conclude that sustained coevolution is distinct from unidirectional selection in shaping the pathogen's genome and life history characteristics. To our knowledge, this study is the first to characterize the pathogen genes involved in coevolutionary adaptation in an animal host-pathogen interaction system.