Molecular phylogenies have been used to study the diversification of many clades. However, current methods for inferring diversification dynamics from molecular phylogenies ignore the possibility that clades may be decreasing in diversity, despite the fact that the fossil record shows this to be the case for many groups. Here we investigate the molecular phylogenetic signature of decreasing diversity using the most widely used statistic for inferring diversity dynamics from molecular phylogenies, the γ statistic. We show that if a clade is in decline its molecular phylogeny may show evidence of the decrease in the diversification rate that occurred between its diversification and decline phases. The ability to detect the change in diversification rate depends largely on the ratio of the speciation rates of the diversification and decline phases, the higher the ratio the stronger the signal of the change in diversification rate. Consequently, molecular phylogenies of clades in relative rapid decline do not carry a signature of their decreasing diversification. Further, the signal of the change in diversification rate, if present, declines as the diversity drop. Unfortunately, the molecular signature of clades in decline is the same as the signature produced by diversity dependent diversification. Given this similarity, and the inability of current methods to detect declining diversity, it is likely that some of the extant clades that show a decrease in diversification rate, currently interpreted as evidence for diversity dependent diversification, are in fact in decline. Unless methods can be developed that can discriminate between the different modes of diversification, specifically diversity dependent diversification and declining diversity, we will need the fossil record, or data from some other source, to distinguish between these very different diversity trajectories.