A phylogenetic analysis of Australian drywood termites (Isoptera, Kalotermitidae) based on partial sequence from the cytochrome oxidase II (COII) and cytochrome b genes is presented. In addition to providing new information on the evolutionary relationships among 25 species from seven genera, we evaluate the relative likelihoods of alternative topological hypotheses, including those derived from morphology-based classifications. We also test the applicability of a molecular clock for estimating the age of the Kalotermitidae and infer the evolution of species-specific variation for habitat type and soldier caste phragmosis by mapping this information onto the independently derived phylogeny. Maximum-likelihood analysis of both nucleotide and protein sequences from a multigene data set jointly support a single topology, which is shown to be the best estimate of the true phylogeny among the alternatives tested. Our results support the monophyly of all genera but question the discrimination between Procryptotermes and Cryptotermes. A basal dichotomy among generic groups suggests two principle lines of divergence within the family. Intergeneric relationships show mixed congruence to previous proposals, resulting in one morphology-based classification being rejected. A molecular clock hypothesis is not supported due to significant among-lineage rate heterogeneity in the COII gene. Patterns revealed through trait mapping suggest that the most recently diverged taxa tend to occupy the driest habitats and that these same taxa reflect a defensive transition away from large mandibulate soldiers toward small phragmotic soldiers. The association between habitat and defensibility supports the hypothesis that these two characters have been tightly linked throughout the social diversification of termites.