The snapping shrimp genus Alpheus is among the most diverse of caridean shrimps, and analyses of taxa separated by the Isthmus of Panama have been used to estimate rates of molecular evolution. Although seven morphological groups have been informally suggested, no formal phylogenetic analysis of the genus has been previously attempted. Here we infer the phylogenetic relationships within Alpheus using sequence data from two nuclear genes, glucose-6-phosphate isomerase and elongation factor-1alpha, and from the mitochondrial gene cytochrome oxidase I. Three major clades corresponding to previously noted morphological features were identified. Discrepancies between earlier informal morphological groupings and molecular analyses largely consisted of species whose morphologies were not entirely typical of the group to which they had been assigned. The traditional placements of shrimp with highly sessile lifestyles and consequently simplified morphologies were also not supported by molecular analyses. Phylogenies for Alpheus suggest that specialized ecological requirements (e.g., symbiotic associations and estuarine habitats) and modified claw morphologies have evolved independently several times. These new analyses also support the sister species status of transisthmian pairs analyzed previously, although very similar pairs were not always resolved with the more slowly evolving nuclear loci. In addition, six new cryptic species were identified in the course of these studies plus a seventh whose status remains to be determined.