New cranial material of Hondalagus altiplanensis, from the middle Miocene of southern Bolivia, allows a rediagnosis of the genus and an assessment of its palaeobiology and phylogenetic relationships with other argyrolagid marsupials. The new specimens demonstrate several derived (synapomorphic) cranial features shared by Hondalagus and Argyrolagus: a globular braincase, ventrally directed occipital condyles, a broad zygomatic arch, and a short, deep dentary with a flat and long coronoid notch. Hondalagus had powerful masticatory muscles and its cementum-encased hypselodont cheek teeth suggests it had a very abrasive diet. The deep fossae on the lateral aspect of the skull of argyrolagids, interpreted by Simpson as large, laterally-facing orbits, are actually sharply margined temporal fossae. Hondalagus has a very large carotid foramen medially situated within the suture of the basisphenoid and basioccipital. A phylogenetic analysis of five argyrolagid genera was conducted using 32 characters (16 cranial, 16 dental) and a didelphid and a caenolestid as outgroups. Hondalagus-Argyrolagus-Microtragulus form a monophyletic group with an undescribed gen. et sp. nov. (MACN-Ch-1305) from the lower Miocene (Colhuehuapian) of Argentina as its sister taxon. Proargyrolagus appears as sister group to the other taxa of argyrolagids.