Hopanes and steranes are found almost universally in the sedimentary rock record where they often are used as proxies for aerobic organisms, metabolisms, and environments. In order to interpret ancient lipid signatures confidently we require a complementary understanding of how these modern biochemical pathways evolved since their conception. For example, generally it has been assumed that hopanoid biosynthesis was an evolutionary predecessor to steroid biosynthesis. Here we re-evaluate this assumption. Using a combined phylogenetic and biochemical perspective, we address the evolution of polycyclic triterpenoid biosynthesis and suggest several constraints on using these molecules as aerobic biomarkers. Amino acid sequence data show that the enzymes responsible for polycyclic triterpenoid biosynthesis (i.e. squalene and 2,3-oxidosqualene cyclases) are homologous. Numerous conserved domains correspond to active sites in the enzymes that are required to complete the complex cyclization reaction. From these sites we develop an evolutionary analysis of three independent characters to explain the evolution of the major classes of polycyclic triterpenoids. These characters are: (i) the number of unfavourable anti-Markovnikov ring closures, (ii) all-chair (CCC) or chair-boat-chair (CBC) substrate conformation, and (iii) the choice between squalene and 2,3-oxidosqualene as the substrate. We use these characters to construct four competing phylogenies to describe the evolution of polycyclic triterpenoid biosynthesis. The analysis suggests that malabaricanoids would be the most ancient polycyclic triterpenoids. The two most parsimonious evolutionary trees are the ones in which hopanoid and steroid cyclases diverged from a common ancestor. The transition from a CCC- to CBC-fold marks the major divergence in the evolution of these pathways, and it is diagnosable in the geological record. However, this transition does not require the simultaneous adoption of the aerobic substrate, 2,3-oxidosqualene, because these characters are controlled by independent parts of the enzyme.