Aquaculture is a burgeoning industry, requiring diversification into new farmed species, which are often at risk from infectious disease. We used a mesocosm technique to investigate the susceptibility of sharpsnout seabream (Diplodus puntazzo) larvae to potential environmental pathogens in seawater compared to control borehole water. Fish exposed to seawater succumbed to epitheliocystis from 21 days post hatching, causing mortality in a quarter of the hosts. The pathogen responsible was not chlamydial, as is often found in epitheliocystis, but a novel species of the γ-proteobacterial genus Endozoicomonas. Detailed characterisation of this pathogen within the infectious lesions using high resolution fluorescent and electron microscopy showed densely packed rod shaped bacteria. A draft genome sequence of this uncultured bacterium was obtained from preserved material. Comparison with the genome of the Endozoicomonas elysicola type strain shows that the genome of Ca. Endozoicomonas cretensis is undergoing decay through loss of functional genes and insertion sequence expansion, often indicative of adaptation to a new niche or restriction to an alternative lifestyle. These results demonstrate the advantage of mesocosm studies for investigating the effect of environmental bacteria on susceptible hosts and provide an important insight into the genome dynamics of a novel fish pathogen.