Reconstructing phylogeny from retrotransposon insertions is often limited by access to only a single reference genome, whereby support for clades that do not include the reference taxon cannot be directly observed. Here we have developed a new statistical framework that accounts for this ascertainment bias, allowing us to employ phylogenetically powerful retrotransposon markers to explore the radiation of the largest living marsupials, the kangaroos and wallabies of the genera Macropus and Wallabia. An exhaustive in silico screening of the tammar wallaby (Macropus eugenii) reference genome followed by experimental screening revealed 29 phylogenetically informative retrotransposon markers belonging to a family of endogenous retroviruses. We identified robust support for the enigmatic swamp wallaby (Wallabia bicolor) falling within a paraphyletic genus, Macropus. Our statistical approach provides a means to test for incomplete lineage sorting and introgression/hybridization in the presence of the ascertainment bias. Using retrotransposons as "molecular fossils", we reveal one of the most complex patterns of hemiplasy yet identified, during the rapid diversification of kangaroos and wallabies. Ancestral state reconstruction incorporating the new retrotransposon phylogenetic information reveals multiple independent ecological shifts among kangaroos into more open habitats, coinciding with the Pliocene onset of increased aridification in Australia from ~3.6 million years ago.