A number of studies have demonstrated the ecological sorting of C3 and C4 grasses along temperature and moisture gradients. However, previous studies of C3 and C4 grass biogeography have often inadvertently compared species in different and relatively unrelated lineages, which are associated with different environmental settings and distinct adaptive traits. Such confounded comparisons of C3 and C4 grasses may bias our understanding of ecological sorting imposed strictly by photosynthetic pathway. Here, we used MaxEnt species distribution modeling in combination with satellite data to understand the functional diversity of C3 and C4 grasses by comparing both large clades and closely related sister taxa. Similar to previous work, we found that C4 grasses showed a preference for regions with higher temperatures and lower precipitation compared with grasses using the C3 pathway. However, air temperature differences were smaller (2 °C vs. 4 °C) and precipitation and % tree cover differences were larger (1783 mm vs. 755 mm, 21.3% vs. 7.7%, respectively) when comparing C3 and C4 grasses within the same clade vs. comparing all C4 and all C3 grasses (i.e., ignoring phylogenetic structure). These results were due to important differences in the environmental preferences of C3 BEP and PACMAD clades (the two main grass clades). Winter precipitation was found to be more important for understanding the distribution and environmental niche of C3 PACMADs in comparison with both C3 BEPs and C4 taxa, for which temperature was much more important. Results comparing closely related C3–C4 sister taxa supported the patterns derived from our modeling of the larger clade groupings. Our findings, which are novel in comparing the distribution and niches of clades, demonstrate that the evolutionary history of taxa is important for understanding the functional diversity of C3 and C4 grasses, and should have implications for how grasslands will respond to global change.