Banksia and Dryandra have undergone extensive speciation and adaptive radiation, especially in Australia's isolated Southwest Botanical Province. We derive a phylogeny for these groups based on cpDNA sequences and use it to reconstruct their historical biogeography and evolution of leaf traits thought to be adapted to drought and/or nutrient poverty. Slowly evolving regions (trnL intron, trnL/trnF spacer) are used to resolve large-scale relationships; faster evolving regions (rp116 intron, psbA/trnH and trnT/trnL spacers) are used to resolve relationships among closely related species. Banksia is paraphyletic with respect to Dryandra. The lineage underwent a basal split into two clades (here named /Cryptostomata and /Phanerostomata), and four infrageneric taxa supported by morphological cladistic analyses (series Spicigerae, Abietinae, Tetragonae, and Banksia) are not monophyletic. Dispersal-vicariance analysis resolves a southwestern Australian origin for the lineage, with two later expansions to the east followed by vicariance events. Stomatal crypts arose with the /Cryptostomata, which is characterized by tough, long-lived leaves and common in southwestern Australia. Sequestering of stomata also arose multiple times in /Phanerostomata, which is characterized by softer, short-lived leaves and common in moister coastal areas, via inrolling of the margins of narrow leaves and restricting stomata to shallow pits. The hypothesis that sclerophylly preadapted the plants to xeromorphy is supported in the case of shallow stomatal pits and deep stomatal crypts, but not narrow, needle-like leaves.