Groups of recently diverged species offer invaluable glimpses into the history and genetic basis of speciation and phenotypic evolution. In this report, we combine phylogenetic and population-genetic approaches to reconstruct the evolutionary history of the Drosophila bipectinata species complex. This complex is a group of four closely related, largely sympatric species – D. bipectinata, D. parabipectinata, D. malerkotliana and D. pseudoananassae. Using the sequences of one mitochondrial and six nuclear loci, we show that D. bipectinata and D. parabipectinata are the two most closely related species, and that together with D. malerkotliana they form a monophyletic clade to which D. pseudoananassae is a relatively distant outgroup. Genetic divergence among D. bipectinata, D. parabipectinata and D. malerkotliana is extremely low, and we estimate that these species diverged only 283000–385000 years ago. We also find that mitochondrial DNA shows evidence of recent gene flow across species boundaries. Despite the low genetic divergence, species of the bipectinata complex show an unusually high degree of morphological differentiation. This contrast underscores the importance of understanding the genetic basis of functional differentiation among closely related species.