Previous hypotheses of phylogenetic relationships among Neotropical parrots were based on limited taxon sampling and lacked support for most internal nodes. In this study we increased the number of taxa (29 species belonging to 25 of the 30 genera) and gene sequences (6388 base pairs of RAG-1, cyt b, NADH2, ATPase 6, ATPase 8, COIII, 12S rDNA, and 16S rDNA) to obtain a stronger molecular phylogenetic hypothesis for this group of birds. Analyses of the combined gene sequences using maximum likelihood and Bayesian methods resulted in a well-supported phylogeny and indicated that amazons and allies are a sister clade to macaws, conures, and relatives, and these two clades are in turn a sister group to parrotlets. Key morphological and behavioral characters used in previous classifications were mapped on the molecular tree and were phylogenetically uninformative. We estimated divergence times of taxa using the molecular tree and Bayesian and penalized likelihood methods that allow for rate variation in DNA substitutions among sites and taxa. Our estimates suggest that the Neotropical parrots shared a common ancestor with Australian parrots 59 Mya (million of years ago; 95% credibility interval (CrI) 66, 51 Mya), well before Australia separated from Antarctica and South America, implying that ancestral parrots were widespread in Gondwanaland. Thus, the divergence of Australian and Neotropical parrots could be attributed to vicariance. The three major clades of Neotropical parrots originated about 50 Mya (95% CrI 57, 41 Mya), coinciding with periods of higher sea level when both Antarctica and South America were fragmented with transcontinental seaways, and likely isolated the ancestors of modern Neotropical parrots in different regions in these continents. The correspondence between major paleoenvironmental changes in South America and the diversification of genera in the clade of amazons and allies between 46 and 16 Mya suggests they diversified exclusively in South America. Conversely, ancestors of parrotlets and of macaws, conures, and allies may have been isolated in Antarctica and/or the southern cone of South America, and only dispersed out of these southern regions when climate cooled and Antarctica became ice-encrusted about 35 Mya. The subsequent radiation of macaws and their allies in South America beginning about 28 Mya (95% CrI 22, 35 Mya) coincides with the uplift of the Andes and the subsequent formation of dry, open grassland habitats that would have facilitated ecological speciation via niche expansion from forested habitats.