The correlation between species diversification and morphological evolution has long been of interest in evolutionary biology. We investigated the relationship between these processes during the radiation of 250+ scincid lizards that constitute Australia's most species-rich clade of terrestrial vertebrates. We generated a time-calibrated phylogenetic tree for the group that was more than 85% complete at the species level and collected multivariate morphometric data for 183 species. We reconstructed the dynamics of species diversification and trait evolution using a Bayesian statistical framework (BAMM) that simultaneously accounts for variation in evolutionary rates through time and among lineages. We extended the BAMM model to accommodate time-dependent phenotypic evolution, and we describe several new methods for summarizing and visualizing macroevolutionary rate heterogeneity on phylogenetic trees. Two major clades (Lerista, Ctenotus; > 90 spp. each) are associated with high rates of species diversification relative to the background rate across Australian sphenomorphine skinks. The Lerista clade is characterized by relatively high lability of body form and has undergone repeated instances of limb reduction, but Ctenotus is characterized by an extreme deceleration in the rate of body shape evolution. We estimate that rates of phenotypic evolution decreased by more than an order of magnitude in the common ancestor of the Ctenotus clade. These results provide evidence for a modal shift in phenotypic evolutionary dynamics and demonstrate that major axes of morphological variation can be decoupled from species diversification. More generally, the Bayesian framework described here can be used to identify and characterize complex mixtures of dynamic processes on phylogenetic trees.