Cephalopods have evolved sophisticated biological systems but how they are engineered and function is poorly understood. Cephalopod genomes and transcriptomes provide detailed lists of genetic components underlying cellular and anatomical parts and can yield novel hypotheses. Testing these ideas using genetic models may soon be possible, as different species are being explored, including pygmy octopus Octopus chierchiae and pygmy squid Idiosepius paradoxus. Understanding how their biological systems, parts, and components integrate in building and operation, or might relate to human, can be enhanced by comparative approaches. However, critical branches in the cephalopod tree are unclear, including pygmy octopus and pygmy squid. BUSCO gene sets represent gene families with typically a single member per species, making gene orthology calls more accurate. Newly-released BUSCO Mollusca HMMs offer identification of nearly 5,300 genes. To resolve deep branches in cephalopods and placement of new pygmy lab models, we have taken a BUSCO-based phylogenomics approach. We produced diverse cephalopod transcriptomes, including PacBio sequencing of pygmy squid and pygmy octopus, and, in combination with public data, leveraged maximum likelihood and Bayesian inference supermatrix and supertree methods. Transcriptomes were annotated by clustering and sequence features identified. Data are now available at the Cephalopod Sequence Evolution and Analysis portal, CephalopodSEA.io. Phylogenetic analyses place pygmy squid as sister to all other decapodiformes, while pygmy octopus are sister to blue rings, mimic octopus, Octopus vulgaris, and kin. This work provides an important tool for comparative and genomic approaches in cephalopods and for establishment of new pygmy lab models in development, physiology, and neuroscience.