How divorce influences parents’ and children’s time use has received very little scientific attention. This study uses high-quality longitudinal time-diary data across six waves from the Longitudinal Study of Australian Children to examine how parental separation shapes parent–child time and children’s daily activities. Results show that separation leads to a strong increase of gender inequalities in parents’ time use. After separation, mother–child time doubles, two-parent time declines by three, and father–child time remains low. Parental separation also leads to a decline in children’s time allocated to educational activities (e.g., studying, reading) and an increase in children’s time in unstructured activities (e.g., TV watching, video gaming, smartphone use). Additionally, the effect of separation on children’s time use is twice as large for boys than for girls, with gender gaps in children’s unstructured time increasing over time. Finally, mother–child time returns to similar pre-separation levels over time, but only after 4 years since separation occurred. The study findings are robust to different panel regression strategies. Overall, this study implies that parental divorce negatively affects children’s developmental time use, especially among boys, and leads lone mothers to experience increasing ‘time penalties’ associated with gender inequalities in society.