The spectacular diversity of sclerophyll plants in the Cape Floristic Region in South Africa and Australia's Southwest Floristic Region has been attributed to either explosive radiation on infertile soils under fire-prone, summer-dry climates or sustained accretion of species under inferred stable climate regimes. However, the very poor fossil record of these regions has made these ideas difficult to test. Here, we reconstruct ecological-scale plant species richness from an exceptionally well-preserved fossil flora. We show that a hyperdiverse sclerophyll flora existed under high-rainfall, summer-wet climates in the Early Pleistocene in southeastern Australia. The sclerophyll flora of this region must, therefore, have suffered subsequent extinctions to result in its current relatively low diversity. This regional loss of sclerophyll diversity occurred at the same time as a loss of rainforest diversity and cannot be explained by ecological substitution of species of one ecological type by another type. We show that sclerophyll hyperdiversity has developed in distinctly non-Mediterranean climates, and this diversity is, therefore, more likely a response to long-term climate stability. Climate stability may have both reduced the intensity of extinctions associated with the Pleistocene climate cycles and promoted the accumulation of species richness by encouraging genetic divergence between populations and discouraging plant dispersal.