The diversification of Indo-Pacific marine fauna has long captivated the attention of evolutionary biologists. Previous studies have mainly focused on coral reef or shallow water-associated taxa. Here, we present the first attempt to reconstruct the evolutionary history—phylogeny, diversification, and biogeography—of a deep-water lineage. We sequenced the molecular markers 16S, COI, ND1, 18S, and 28S for nearly 80% of the nominal species of the squat lobster genus Paramunida. Analyses of the molecular phylogeny revealed an accelerated diversification in the late Oligocene–Miocene followed by a slowdown in the rate of lineage accumulation over time. A parametric biogeographical reconstruction showed the importance of the southwest Pacific area, specifically the island arc of Fiji, Tonga, Vanuatu, Wallis, and Futuna, for diversification of squat lobsters, probably associated with the global warming, high tectonic activity, and changes in oceanic currents that took place in this region during the Oligocene–Miocene period. These results add strong evidence to the hypothesis that the Neogene was a period of major diversification for marine organisms in both shallow and deep waters.