High-quality genome assemblies across a range of nontraditional model organisms can accelerate the discovery of novel aspects of genome evolution. The Drosophila virilis group has several attributes that distinguish it from more highly studied species in the Drosophila genus, such as an unusual abundance of repetitive elements and extensive karyotype evolution, in addition to being an attractive model for speciation genetics. Here, we used long-read sequencing to assemble five genomes of three virilis group species and characterized sequence and structural divergence and repetitive DNA evolution. We find that our contiguous genome assemblies allow characterization of chromosomal arrangements with ease and can facilitate analysis of inversion breakpoints. We also leverage a small panel of resequenced strains to explore the genomic pattern of divergence and polymorphism in this species and show that known demographic histories largely predicts the extent of genome-wide segregating polymorphism. We further find that a neo-X chromosome in Drosophila americana displays X-like levels of nucleotide diversity. We also found that unusual repetitive elements were responsible for much of the divergence in genome composition among species. Helitron-derived tandem repeats tripled in abundance on the Y chromosome in D. americana compared to Drosophila novamexicana, accounting for most of the difference in repeat content between these sister species. Repeats with characteristics of both transposable elements and satellite DNAs expanded by 3-fold, mostly in euchromatin, in both D. americana and D. novamexicana compared to D. virilis. Our results represent a major advance in our understanding of genome biology in this emerging model clade.