Freshwater prawns of the genus Macrobrachium are free-living decapod crustaceans that are commonly encountered in tropical streams and lakes. We present a molecular phylogenetic analysis of the diverse Southeast and East Asian fauna based on >3 kb sequence data from three nuclear and two mitochondrial markers for almost 50% of the described fauna. We reconstruct the phylogenetic relationships and track the evolution of key life history traits. Our tree suggests that the last common ancestor of the Asian Macrobrachium laid numerous small eggs and had prolonged larval development ("PLD") in saline coastal waters after which the adults matured in freshwater habitats. We also argue for five independent losses of the marine larval phase to yield five clades of species that develop entirely in freshwater and have fewer and larger eggs than the species with PLD. These species have either semi-abbreviated (two origins) with at least one free-swimming stage or abbreviated larval development ("ALD": three origins) which lack free-swimming larvae. A Shimodaira-Hasegawa test rejects all trees that would imply a single loss of the marine larval phase, but alternative and equally parsimonious optimizations exist that imply a smaller number of losses. However, these scenarios would require the re-acquisition of free-swimming larvae. A concentrated-change test supports Pereira and Garcia's [Pereira, G.A., Garcia, J.V., 1995. Larval development of Macrobrachium reyesi Pereira (Decapoda, Palaemonidae), with a discussion on the origin of abbreviated development in palaemonids. J. Crust. Biol. 15, 117-133] hypothesis of a significant correlation between living in freshwater and the origin of semi-abbreviated and abbreviated larval development. Our phylogenetic tree also reveals that Asian Macrobrachium have independently become cavernicolous at least twice, and invaded the highly acidic waters of freshwater and peat swamps two or three times.