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Late Cenozoic climate change led to the progressive aridification of Australia over the past 15 million years. This gradual biome turnover fundamentally changed Australia's ecosystems, opening new niches and prompting diversification of plants and animals. One example are termites of the Australian Amitermes group (AAG), consisting of the Australian Amitermes and affiliated genera. Although the most speciose and diverse higher termite group in Australia, little is known about its evolutionary history. We used ancestral range reconstruction and diversification analyses to illuminate 1) phylogenetic relationships of the AAG, 2) biogeographical processes leading to the current continent‐wide distribution and 3) timing and pattern of diversification in the context of late Cenozoic climate change. By estimating the largest time‐calibrated phylogeny for this group to date, we demonstrate monophyly of the AAG and confirm that their ancestor arrived in Australia ~11–10 million years ago (Mya) from Southeast Asia. Ancestral range reconstruction indicates that Australia's monsoon region was the launching point for a continental radiation shaped by dispersal and within‐biome speciation rather than vicariance. We found that multiple arid‐zone species diversified from mesic and tropical ancestors in the Plio‐Pleistocene, but also observed diversification in the opposite direction. Finally, we show that diversification steadily increased from ~8 to 9 Mya during the 'Hill Gap' and accelerated from ~4 Mya in concert with major ecological change during the Pliocene. Consistent with rapid diversification, species accumulation then slowed down into the present, likely caused by progressive niche saturation. This study provides a stepping stone for predicting future responses of Australia's termite fauna in the face of human‐mediated climate change. [ABSTRACT FROM AUTHOR]