Bacteria in the modern taxonomic sense are one of the three Domains. They must have split from the other two after the bulk of the development of biochemistry and cell biology had taken place. Up to the time of the Last Universal Ancestor (LUA) the world had been monophyletic with little stable diversity. This is to say that as advances took place the older forms were eliminated and diversity was only temporary. Two kinds of events could, in principle, permit stable diversity to arise. One kind occurs when two nearly simultaneous, different advances occur, both of which overcome the same problem. While the previous type would be supplanted, if the new types did not compete with each other, new niches and habitats could lead to stable diversity. The second kind is a saltation or macroevolutionary event that greatly expands the biota and reduces previous constraints and thereby drastically reduces competition; this generally leads to a 'species radiation' and results in the development of a spectrum of biological types some of which persist and do not compete with each other. It is proposed that the two splits to yield the three Domains of Bacteria, Archaea, and Eukarya, resulted from one of each of these two processes leading to diversity. One arose from the consequences of cells accumulating substances from the environment, thus increasing their internal osmotic pressure. This resulted in two nearly simultaneous biological solutions: one (Bacteria) was the development of the external sacculus, i.e. the formation of a stress-bearing exoskeleton. The other (Eukarya) was the development of cytoskeletons and mechanoenzymes, i.e. formation of an endoskeleton. The other event causing diversity was the invention of an effective way to tap a new energy source and allow the biomass to increase extensively permitting a radiation of many different types of organisms. I suggest that this seminal advance was the development of methanogenesis. This caused a short-lived expansion and radiation before oxygen-producing photosynthesis allowed a still more major expansion and decreased the number of methanogens. Some details of these processes are elaborated. In particular, the evolutionary process that permitted the development of a sacculus, interpreted in light of the bacterial physiology of today's organisms is presented. It is argued that many great advances arise by developing a number of totally different processes for other purposes that can then each be modified to combine for yet another purpose.