Seahorses (Syngnathidae: Hippocampus) are iconic marine teleosts that are readily identifiable by their upright posture. The fossil record is inadequate to shed light on the evolution of this trait because it lacks transitional forms. There are, however, extant syngnathid species (the pygmy pipehorses) that look like horizontally swimming seahorses and that might represent a surviving evolutionary link between the benthic seahorses and other, free-swimming members of the family Syngnathidae. Using sequence data from five nuclear loci, we confirm the sister taxon relationship between seahorses and pygmy pipehorses. Molecular dating indicates that the two taxa diverged during the Late Oligocene. During this time, tectonic events in the Indo-West Pacific resulted in the formation of vast amounts of new shallow-water areas and associated expansion of seagrass habitats that would have favoured the seahorses' upright posture by improving their camouflage while not affecting their manoeuvrability negatively. The molecular techniques employed here provide new insights into the evolution of a taxon whose fossil record is incomplete, but whose evolutionary history is so recent that the major stages of morphological evolution are still represented in extant species.