The covariation of biodiversity with climate is a fundamental pattern in nature. However, despite the ubiquity of this relationship, a consensus on the ultimate cause remains elusive. The evolutionary speed hypothesis posits direct mechanistic links between ambient temperature, the tempo of micro-evolution and, ultimately, species richness. Previous research has demonstrated faster rates of molecular evolution in warmer climates for a broad range of poikilothermic and homeothermic organisms, in both terrestrial and aquatic environments. In terrestrial systems, species richness increases with both temperature and water availability and the interaction of those terms: productivity. However, the influence of water availability as an independent variable on micro-evolutionary processes has not been examined previously. Here, using methodology that limits the potentially confounding role of cladogenetic and demographic processes, we report, to our knowledge, the first evidence that woody plants living in the arid Australian Outback are evolving more slowly than related species growing at similar latitudes in moist habitats on the mesic continental margins. These results support a modified evolutionary speed explanation for the relationship between the water-energy balance and plant diversity patterns.