A number of alignment-free methods have been proposed for phylogeny reconstruction over the past two decades. But there are some long-standing challenges in these methods, including requirement of huge computer memory and CPU time, and existence of duplicate computations. In this article, we address these challenges with the idea of compressed vector, fingerprint and scalable memory management. With these ideas we developed the DLTree algorithm for efficient implementation of the dynamical language model and whole genome-based phylogenetic analysis. The DLTree algorithm was compared with other alignment-free tools, demonstrating that it is more efficient and accurate for phylogeny reconstruction.