Squamate reptiles number approximately 8000 living species and are a major component of the world's terrestrial vertebrate diversity. However, the established relationships of the higher-level groups have been questioned in recent molecular analyses. Here we expand the molecular data to include DNA sequences, totaling 6192 base pairs (bp), from nine nuclear protein-coding genes (C-mos, RAG1, RAG2, R35, HOXA13, JUN, alpha-enolase, amelogenin and MAFB) for 19 taxa representing all major lineages. Our phylogenetic analyses yield a largely resolved phylogeny that challenges previous morphological analyses and requires a new classification. The limbless dibamids are the most basal squamates. Of the remaining taxa (Bifurcata), the gekkonids form a basal lineage. The Unidentata, squamates that are neither dibamids nor gekkonids, are divided into the Scinciformata (scincids, xantusiids, and cordylids) and the Episquamata (remaining taxa). Episquamata includes Laterata (Teiformata, Lacertiformata, and Amphisbaenia, with the latter two joined in Lacertibaenia) and Toxicofera (iguanians, anguimorphs and snakes). Our results reject several previous hypotheses that identified either the varanids, or a burrowing lineage such as amphisbaenians or dibamids, as the closest relative of snakes. Our study also rejects the monophyly of both Scleroglossa and Autarchoglossa, because Iguania, a species-rich lineage (ca. 1440 sp.), is in a highly nested position rather than being basal among Squamata. Thus iguanians should not be viewed as representing a primitive state of squamate evolution but rather a specialized and successful clade combining lingual prehension, dependence on visual cues, and ambush foraging mode, and which feeds mainly on prey avoided by other squamates. Molecular time estimates show that the Triassic and Jurassic (from 250 to 150 Myr) were important times for squamate evolution and diversification.