Partial crania of two fossil species of koala (family Phascolarctidae) from Oligo-Miocene deposits in the Riversleigh World Heritage Area, one referable to Litokoala kutjamarpensis and another to Nimiokoala greystanesi, are described. Comparison with the extant koala Phascolarctos cinereus and other diprotodontian marsupials reveals a high degree of similarity in basicranial morphology between fossil and modern phascolarctids but substantial differences in the architecture of the masticatory system. Key specialisations present in Phascolarctos but absent in both Litokoala and Nimiokoala include forward displacement of the palate, enlargement of the occlusal surface of the molar teeth, thickening of the maxillae above the toothrow with resultant lowering of the occlusal plane of the cheekteeth relative to the glenoid fossa, and a decrease in the size of the pterygoid fossae. These extreme aspects of the cranial morphology of Phacolarctos probably reflect its dependence on eucalypt leaves, a nutrient-poor food resource that became increasingly abundant in the Australian environment through the Neogene. Derived similarities in basicranial structure, notably the large size of the auditory bulla, between the fossil and modern phascolarctids raises the possibility that two distinctive behavioural characteristics of the modern koala, sedentism and vociferousness, may have developed relatively early during phascolarctid evolution.