Phenotypic plasticity in general and polyphenic development in particular are thought to play important roles in organismal diversification and evolutionary innovation. Focusing on the evolutionary developmental biology of insects, and specifically that of horned beetles, I explore the avenues by which phenotypic plasticity and polyphenic development have mediated the origins of novelty and diversity. Specifically, I argue that phenotypic plasticity generates novel targets for evolutionary processes to act on, as well as brings about trade-offs during development and evolution, thereby diversifying evolutionary trajectories available to natural populations. Lastly, I examine the notion that in those cases in which phenotypic plasticity is underlain by modularity in gene expression, it results in a fundamental trade-off between degree of plasticity and mutation accumulation. On one hand, this trade-off limits the extent of plasticity that can be accommodated by modularity of gene expression. On the other hand, it causes genes whose expression is specific to rare environments to accumulate greater variation within species, providing the opportunity for faster divergence and diversification between species, compared with genes expressed across environments. Phenotypic plasticity therefore contributes to organismal diversification on a variety of levels of biological organization, thereby facilitating the evolution of novel traits, new species and complex life cycles.