Small crustaceans are diverse and abundant in seagrass habitats and provide many ecological services. Further information is needed about their long- and short-term response to habitat fragmentation and loss. Shrimp specimens were sampled from coastal seagrasses: latitudes 9°–27° S (Torres Strait to Moreton Bay, Queensland, Australia) and longitudes 141°–153° E (Weipa to Moreton Bay, Queensland, Australia). The seagrass shrimp Phycomenes zostericola (Caridea: Decapoda) underwent phylogeographic analysis using mitochondrial and nuclear sequence data. Lineage relationships were investigated and two deeply divergent sympatric lineages of P. zostericola were discovered in northern samples. The two lineages display vastly different demographic histories in spite of similar overall phylogeographic patterns. The two lineages appear to be in secondary contact with each other, detailing independent histories of sea level change, long distance colonisation and habitat fragmentation. Their regional structure is evidence that the potential for dispersal is only realised under specific environmental conditions. Nuclear data, used to determine reproductive status between lineages, instead displayed a non-random latitudinal geographic distribution suggesting directional selection, possibly in response to ocean temperatures. The differences between the two deeply divergent lineages highlight the importance of understanding variability among cryptic taxa and their response to habitat change.