Understanding the evolution of the marsupial order Diprotodontia (kangaroos, koala, wombats and possums) has been hampered by conflicting reconstructions across molecular and morphological data. However the relative phylogenetic performance of these sources of data has not been extensively tested. We show that ameliorating base composition biases in mitochondrial (mt) DNA brings close agreement with nuclear DNA, which is encouraging for inferring the affinities of megafaunal marsupials, for which mtDNA is more obtainable. Incongruence with morphological reconstructions was driven by functional/developmental correlations with diet and body size, which may be corrected for, in order to merge older diprotodontian fossils into the marsupial tree. Here we present the most complete (to-date) time-calibrated phylogeny of Diprotodontia based on nuclear and mtDNA. The diversification analyses reveal a faunal turn-over within the order Diprotodontia with Vombatiformes being replaced by macropods (kangaroos). They also suggest that the adaptive radiation of diprotodontians was initially rapid, until competitive barriers arrested their evolution, and limited niche overlap between families. One group, Macropodiformes (kangaroos) escaped this evolutionary captivity and appear to have since been displacing Vombatifomes (wombats and koala).