The mudfish genus Neochanna (Osmeriformes: Galaxiidae) contains six species that exhibit varying degrees of morphological and ecological adaptation to life in swampy conditions. Here, we present the first molecular phylogenetic analysis (16S rRNA+cytochrome b; 1681bp) of the entire genus to (1) test for monophyly of Australian and New Zealand taxa and (2) elucidate morphological character evolution. In addition, we analyse a matrix of 21 morphological characters to test for congruence between mitochondrial DNA and morphology, and to examine total evidence under a Bayesian framework. Molecular data indicate that the diadromous Tasmanian mudfish, N. cleaveri, is sister to a clade of five non-diadromous New Zealand mudfishes. Mapping of morphological characters onto the molecular phylogeny suggests an evolutionary transition from a plesiomorphic "stream" galaxiid morphotype to a more specialised "anguilliform" galaxiid morphotype. Pelvic fins have become increasingly reduced and dorsal, anal, and caudal fins are increasingly confluent. Associated with these changes are elongated nostrils, reduced eyes, and increased anterior cranial ossification. Morphological and total evidence analyses yield similar or identical topologies, respectively. The phylogenetic distribution of diadromy in Neochanna is consistent with a single loss of this character state in New Zealand. However, the strong sister relationship (3.6% divergent; 100% bootstrap support) detected between non-diadromous N. burrowsius (South Island, NZ) and N. rekohua (Chatham Islands) indicates geologically recent dispersal across 850km of ocean. Diadromy may therefore have been retained in the common ancestor of these two mudfish species, and subsequently lost from both lineages.