The bilby (Macrotis lagotis) is a small omnivorous marsupial that was once widespread but is now restricted to the most arid margins of its former range. It feeds on a mixture of invertebrates (mainly ants and termites) and plant material (mainly seeds and bulbs), most of which is below ground. Measurements of the energy and water requirements of free-living bilbies and of the maintenance nitrogen requirements of captive animals provided the basis for an explanation for its continued survival in the Australian arid zone. Measurements of the mean retention times of inert markers for the solute and particulate phases of digesta revealed no selective retention of solutes and small particles in the caecum. Lack of selective digesta retention in the bilby hindgut helps to explain why the plant component of their diet consists predominantly of seeds and bulbs of relatively low fibre content. This is in contrast to the stems and leaves eaten by other bandicoots, all of which appear to have a colonic separation mechanism that not only selectively retains small particles in the caecum but also facilitates the passage of large fibrous particles through the colon. The ability of the bilby to survive in the Australian arid zone is related to low water and nitrogen requirements and the abundance of ants, termites, bulbs and seeds. Foraging efficiency is maximised by exploiting the underground nests of seed-harvesting ants.