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Wrasses in the genus Thalassoma comprise 27 recognized species that occur predominantly on coral reefs and subtropical rocky reefs worldwide. The phylogenetic relationships for 26 species were examined based on two mitochondrial genes (cytochrome b and 16S rRNA) and one nuclear intron (the first intron of the ribosomal protein S7). Two closely related species, the bird-wrasses (Gomphosus varius Lacepede, 1801 and G. caerulaeus Lacepede, 1801), were also included in the analysis. These species grouped within the genus Thalassoma. Thalassoma newtoni (Osorio, 1891) from Sao Tome, which is generally synonymized with the Atlantic/Mediterranean Thalassoma pavo (Linnaeus, 1758) appears to be a valid species. Using a molecular clock, the genus was estimated to have originally diverged 8-13 million years ago, with Thalassoma ballieui (Vaillant and Sauvage, 1875) from Hawaii and Thalassoma septemfasciata Scott, 1959 from Western Australia as the ancestral species. Approximately 5-10 million years ago, a sudden burst of speciation resulted in seven clades, which were resolved with the sequence data. The terminal Tethyan event and the closing of the Isthmus of Panama were probably the major historical factors shaping the evolution of species in the genus Thalassoma. These data on the spatio-temporal pattern of speciation in the Indo-Pacific indicate that peripheral species have been generated at various times throughout the history of the genus, and that none of the widespread species are relatively young. Thus, there is no clear support for centrifugal (youngest at the periphery) versus centripetal (oldest at the periphery) modes of generation of species, two theories which have been used to account for geographic gradients in species diversity.