Southwest China is characterized by high plateaus, large mountain systems, and deeply incised dry valleys formed by major rivers and their tributaries. Despite the considerable attention given to alpine plant radiations in this region, the timing and mode of the diversification of the numerous plant lineages in the dry valley habitat remains unknown. To address this knowledge gap, we investigate the macroevolution of Isodon (Lamiaceae), a lineage commonly distributed in the dry valleys in southwest China and wetter areas of Asia and Africa. We reconstructed a robust phylogeny encompassing nearly 90% of the approximately 140 extant Isodon species using transcriptome and genome-resequencing data. Our results suggest a rapid radiation of Isodon during the Pliocene that coincided with a habit shift from herbs to shrubs and a habitat shift from humid areas to dry valleys. The shrubby growth form likely acted as a preadaptation allowing for the movement of Isodon species into these valleys. Ecological analysis highlighted aridity and precipitation as key factors influencing the niche preferences of different growth forms and species richness of Isodon. Integrating our results with insights from tectonic movements in the Tibetan Plateau and adjacent regions, we infer that the interplay between topography and the evolution of the East Asian monsoon since the middle Miocene likely contributed to the formation of the dry valley biome in southwest China. This study enhances our understanding of evolutionary dynamics and ecological drivers shaping the distinctive flora of this region.