A major paradigm in evolutionary biology asserts that global climate change during the Pleistocene often led to rapid and extensive diversification in numerous taxa. Recent phylogenetic data suggest that past climatic oscillations may have promoted long-distance marine dispersal in some freshwater crustacea from the Indo-Australian Archipelago (IAA). Whether this pattern is common, and whether similar processes are acting on diversification below the species level is unknown. We used nuclear and mitochondrial molecular variation in a freshwater-dependent decapod crustacean (Macrobrachium rosenbergii), sampled widely from the IAA, to assess the impact of Pleistocene sea-level changes on lineage diversification in this species. Fitting of an isolation with migration model enabled us to reject ongoing migration among lineages, and results indicate that isolation among both mainland–mainland and mainland–island lineages arose during the mid-Pleistocene. Our data suggest a scenario of widespread marine dispersal during Pleistocene glacial maxima (in support of the ‘Pleistocene marine dispersal hypothesis’) when sea levels were low, and geographical distances between fresh watersheds were greatly reduced, followed by increased isolation as sea levels subsequently rose.