AbstractUnderstanding when and how habitat transitions occurred is essential for a comprehensive insight into the succession of marine ecosystem and biodiversity. Here we investigated the evolutionary process of an ancient, widespread and ecologically diversified lineage of marine benthic fauna, the ghost and mud shrimps (Decapoda: Axiidea). To reconstruct a robust, time‐calibrated phylogeny of this intractable group, we sampled more comprehensively than in previous studies and utilized three types of sequencing data: Sanger, genome‐skimming and ultra‐conserved elements (UCEs). The UCEs tree supports a monophyletic Axiidea sister to the ‘Gebiidea + (Brachyura + Anomura)’ clade. Our findings reveal the monophyletic status of Callianideidae and Micheleidae, whereas Axiidae and Strahlaxiidae as presently understood are shown to be non‐monophyletic. Axiidae s.s. is now restricted to four genera, Strahlaxiidae to one genus, with most former “axiid” genera reclassified under Calocarididae. We determine that crown axiidean shrimps diverged in the Middle Triassic, with a significant habitat transition from epibenthic to endobenthic during the Middle to Late Jurassic, possibly in response to environmental changes and available ecological niche. We hypothesize that the extreme morphological and behavioural adaptations to the obligate/subsurface burrowing life facilitated the radiation and diversification of ghost shrimps, despite some instances of adaptive convergence.