Phylogenetic reconstruction of the evolutionary relationships among 61 of the 70 species of the parrotfish genera Chlorurus and Scarus (Family Labridae) based on mitochondrial and nuclear gene sequences retrieved 15 well-supported clades with mid Pliocene/Pleistocene diversification. Twenty-two reciprocally monophyletic sister-species pairs were identified: 64% were allopatric, and the remainder were sympatric. Age of divergence was similar for allopatric and sympatric species pairs. Sympatric sister pairs displayed greater divergence in morphology, ecology, and sexually dimorphic colour patterns than did allopatric pairs, suggesting that both genetic drift in allopatric species pairs and ecologically adaptive divergence between members of sympatric pairs have played a role in diversification. Basal species typically have small geographical ranges and are restricted to geographically and ecologically peripheral reef habitats. We found little evidence that a single dominant process has driven diversification, nor did we detect a pattern of discrete, sequential stages of diversification in relation to habitat, ecology, and reproductive biology. The evolution of Chlorurus and Scarus has been complex, involving a number of speciation processes. © 2012 The Linnean Society of London, Biological Journal of the Linnean Society, 2012, 107, 529–557.