The vermetid Thylaeodus equatorialis sp. nov. is endemic to the São Pedro and São Paulo Archipelago, located at the mid equatorial Atlantic Ocean. The species is closely related to Thylaeodus rugulosus (Monterosato, 1878), as indicated by similar shell characters, coloration of the soft parts, and feeding tube scars. However, T. equatorialis sp. nov. mainly differs from T. rugulosus in the operculum/aperture diameter ratio (~79% versus 100%), by having well developed pedal tentacles and fewer egg capsules in brooding females. In addition, the new species has the following unique characteristics: size almost twice as large (shell, tube aperture, erect feeding tube, protoconch and egg capsules) as the other Atlantic species; unusual method of brooding egg capsules; radula with prominent and more numerous flanking cusps; and small pustules following the suture of the protoconch. A detailed discussion on the taxonomy and biology of vermetid Thylaeodus and allies is also presented.