The New World avian family Polioptilidae (gnatcatchers and gnatwrens) is distributed from Argentina to Canada and includes 15 species and more than 60 subspecies. No study to date has evaluated phylogenetic relationships within this family and the historical pattern of diversification within the group remains unknown. Moreover, species limits, particularly in widespread taxa that show geographic variation, remain unclear. In this study, we delimited species and estimated phylogenetic relationships using multilocus data for the entire family. We then used the inferred diversity along with alternative taxonomic classification schemes to evaluate how lumping and splitting of both taxa and geographical areas influenced biogeographic inference. Species-tree analyses grouped Polioptilidae into four main clades: Microbates, Ramphocaenus, a Polioptila guianensis complex, and the remaining members of Polioptila. Ramphocaenus melanurus was sister to the clade containing M. cinereiventris and M. collaris, which formed a clade sister to all species within Polioptila. Polioptila was composed of two clades, the first of which included the P. guianensis complex; the other contained all remaining species in the genus. Using multispecies coalescent modeling, we inferred a more than 3-fold increase in species diversity, of which 87% represent currently recognized species or subspecies. Much of this diversity corresponded to subspecies that occur in the Neotropics. We identified three polyphyletic species, and delimited 4–6 previously undescribed candidate taxa. Probabilistic modeling of geographic ranges on the species tree indicated that the family likely had an ancestral origin in South America, with all three genera independently colonizing North America. Support for this hypothesis, however, was sensitive to the taxonomic classification scheme used and the number of geographical areas allowed. Our study proposes the first phylogenetic hypothesis for Polioptilidae and provides genealogical support for the reclassification of species limits. Species limits and the resolution of geographical areas that taxa inhabit influence the inferred spatial diversification history.