With 22 described species, Phalloceros is the most species-rich genus of Poeciliidae in South America. Phalloceros diversity is characterized by high degrees of endemism and sympatry in coastal and inland drainages in southeastern South America. The taxa are also characterized by pronounced differentiation in sexual characters (i.e., female urogenital papilla and male gonopodium), which might have contributed to their diversification. Here we estimate phylogenetic relationships based on more than 18,000 loci in 93 individuals representing 19 described species and two putative undescribed species. Morphologically defined species correspond to monophyletic species lineages, with individuals within a species clustering together in phylogenetic estimates, with the main exception being P. harpagos, supporting undiscovered diversity in this morphospecies. Shifts in the female and male sexual traits (i.e., urogenital papilla and gonopodium) occurred in concert multiple times along the phylogeny highlighting the role of sexual selection in driving divergence in this genus. Out of 22 valid species, 14 species are found in sympatry with at least one other species of this genus. However, most co-occurrences are observed among non-sister species suggesting that diversification among closely related species involved mostly allopatric speciation, with only two instances of sympatric sister-species observed. A strong mismatch in sexual traits among sympatric taxa suggests that co-existence may be linked to divergent sexual traits that maintain species genetic distinctiveness through mechanical disruptions of interbreeding.