Arboreal marsupials play an essential role in ecosystem function including regulating insect and plant populations, facilitating pollen and seed dispersal and acting as a prey source for higher-order carnivores in Australian environments. Primarily, research has focused on their biology, ecology and response to disturbance in forested and urban environments. We used presence-only species distribution modelling to understand the relationship between occurrences of arboreal marsupials and eco-geographical variables, and to infer habitat suitability across an urban gradient. We used post-proportional analysis to determine whether increasing urbanization affected potential habitat for arboreal marsupials. The key eco-geographical variables that influenced disturbance intolerant species and those with moderate tolerance to disturbance were natural features such as tree cover and proximity to rivers and to riparian vegetation, whereas variables for disturbance tolerant species were anthropogenic-based (e.g., road density) but also included some natural characteristics such as proximity to riparian vegetation, elevation and tree cover. Arboreal marsupial diversity was subject to substantial change along the gradient, with potential habitat for disturbance-tolerant marsupials distributed across the complete gradient and potential habitat for less tolerant species being restricted to the natural portion of the gradient. This resulted in highly-urbanized environments being inhabited by a few generalist arboreal marsupial species. Increasing urbanization therefore leads to functional simplification of arboreal marsupial assemblages, thus impacting on the ecosystem services they provide.