Aim: The species diversity and endemism of tropical biotas are major contributors to global biodiversity, but the factors underlying the formation of these systems remain poorly understood. Location: The world's largest tropical island, New Guinea. Time period: Miocene to present. Major taxa studied: Passerine birds. Methods: We first generated a species-level phylogeny of all native breeding passerine birds to analyse spatial and elevational patterns of species richness, species age and phylogenetic diversity. Second, we used an existing dataset on bill morphology to analyse spatial and elevational patterns of functional diversity. Results: The youngest New Guinean species are principally distributed in the lowlands and outlying mountain ranges, with the lowlands also maintaining the majority of non-endemic species. In contrast, many species occurring in the central mountain range are phylogenetically distinct, range-restricted, endemic lineages. Centres of accumulation for the oldest species are in montane forest, with these taxa having evolved unique bill forms in comparison to the remaining New Guinean species. For the morphological generalists, attaining a highland distribution does not necessarily represent the end to dispersal and diversification, because a number of new species have formed in the outlying mountain ranges, following recent colonization from the central range. Main conclusions: We conclude that a general model of tropical montane diversification is that lineages commonly colonize the lowlands, shifting their ranges upslope through time to become range-restricted montane forest endemics, attaining novel functional adaptations to these environments.