The functional diversification of multigene families may be strongly influenced by mechanisms of concerted evolution such as interparalog gene conversion. The beta-globin gene family of house mice (genus Mus) represents an especially promising system for evaluating the effects of gene conversion on the functional divergence of duplicated genes. Whereas the majority of mammalian species possess tandemly duplicated copies of the adult beta-globin gene that are identical in sequence, natural populations of house mice are often polymorphic for distinct two-locus haplotypes that differ in levels of functional divergence between duplicated beta-globin genes, HBB-T1 and HBB-T2. Here, we use a phylogenetic approach to unravel the complex evolutionary history of the HBB-T1 and HBB-T2 paralogs in a taxonomically diverse set of species in the genus Mus. The main objectives of this study were 1) to reconstruct the evolutionary history of the different HBB haplotypes of house mice, 2) to assess the role of recombinational exchange between HBB-T1 and HBB-T2 in promoting concerted evolution, 3) to assess the role of recombinational exchange between HBB-T1 and HBB-T2 in creating chimeric genes, and 4) to assess the structural basis of hemoglobin isoform differentiation in species that possess distinct HBB paralogs. Results of our phylogenetic survey revealed that the HBB-T1 and HBB-T2 genes in different species of Mus exhibit the full range of evolutionary outcomes with respect to levels of interparalog divergence. At one end of the spectrum, the two identical HBB paralogs on the Hbb(s) haplotype (shared by Mus domesticus, Mus musculus, and Mus spretus) represent a classic example of concerted evolution. At the other end of the spectrum, the two distinct HBB paralogs on the Hbb(d), Hbb(p), Hbb(w1), and Hbb(w2) haplotypes (shared by multiple species in the subgenus Mus) show no trace of gene conversion and are distinguished by a number of functionally important amino acid substitutions. Because the possession of distinct HBB paralogs expands the repertoire of functionally distinct hemoglobin isoforms that can be synthesized during fetal development and postnatal life, variation in the level of functional divergence between HBB-T1 and HBB-T2 may underlie important physiological variation within and among species.