Background: The radiation of ecdysozoans (moulting animals) during the Cambrian gave rise to panarthropods and various groups of worms including scalidophorans, which played an important role in the elaboration of early marine ecosystems. Although most scalidophorans were infaunal burrowers travelling through soft sediment at the bottom of the sea, Selkirkia lived inside a tube. Results: We explore the palaeobiology of these tubicolous worms, and more generally the origin and evolutionary significance of tube-dwelling in early animals, based on exceptionally preserved fossils from the early Cambrian Chengjiang Lagerstätte (Stage 3, China) including a new species, Selkirkia transita sp. nov. We find that the best phylogenetic model resolves Selkirkia as a stem-group priapulid. Selkirkia secreted a protective cuticular thickening, the tube, inside which it was able to move during at least part of its life. Partly based on measured growth patterns, we construe that this tube was separated from the trunk during a moulting process that has no direct equivalent in other scalidophorans. Although the ontogeny of Selkirkia is currently unknown, we hypothesize that its conical tube might have had the same ecological function and possibly even deep development origin as the lorica, a protective cuticular thickening found in larval priapulids and adult loriciferans. Selkirkia is seen as a semisedentary animal capable of very shallow incursions below the water/sediment interface, possibly for feeding or during the tube-secreting phase. Brachiopod epibionts previously reported from the Xiaoshiba Lagerstätte (ca. 514 Ma) also presumably occur in Selkirkia sinica from Chengjiang (ca. 518 Ma). Conclusions: Our critical and model-based approach provides a new phylogenetic framework for Scalidophora, upon which to improve in order to study the evolution of morphological characters in this group. Tube-dwelling is likely to have offered Selkirkia better protection and anchoring to sediment and has developed simultaneously in other Cambrian animals such as hemichordates, annelids or panarthropods. Often lost in modern representatives in favour of active infaunal lifestyles, tube-dwelling can be regarded as an early evolutionary response of various metazoans to increasing environmental and biological pressure in Cambrian marine ecosystems.