Fermentative digestion in an expanded foregut region has evolved independently among Australia's marsupial kangaroos as well as among placental ruminants. However, notable differences occur in the form and function of the kangaroo and ruminant forestomachs, the main site of fermentation; kangaroos possess a tubiform forestomach, reminiscent of the horse colon, whereas ruminants possess a large vat-like structure. How these differences in gut form might influence kangaroo and sheep ecologies is uncertain. We compared diet choice, apparent digestibility (dry matter), food intake and grazing behaviour of Australia's largest kangaroo, the red kangaroo Macropus rufus and the ruminant sheep Ovis aries. Digestive efficiencies were comparable with other studies, 52% for kangaroos and 59% for sheep, but were not significantly different. Per animal, the smaller red kangaroos (body mass 24 kg) ingested less food than the larger sheep (50 kg), but both species engaged in food harvesting for the same length of time each day (c. 10 h). However, sheep spend additional time re-processing ingesta via rumination, a strategy not used by kangaroos. Kangaroos were more selective in their diet, having a narrower niche compared with sheep. The tubiform forestomach of kangaroos appears to support long foraging bouts, mainly in the evening and early morning; kangaroos rested during the hottest parts of the day. Conversely, sheep feed in short bursts, and gut-filling during feeding bouts is partly dependent on the animal freeing forestomach space by ruminating previous meals, possibly increasing water requirements of sheep through activity and thermal loads associated with more frequent feeding. Water use (L day−1) by kangaroos was just 13% that of sheep, and kangaroos were able to concentrate their urine more effectively than sheep, even though the kangaroos' diet contained a high amount of high-salt chenopods, providing further support for potentially lower grazing impacts of kangaroos compared with domestic sheep in Australia's arid rangelands.