Velvet worms (Onychophora) are charismatic soil invertebrates known for their status as a “living fossil”, their phylogenetic affiliation to arthropods, and their distinctive biogeographic patterns. However, several aspects of their internal phylogenetic relationships remain unresolved, limiting our understanding of the group’s evolutionary history, particularly with regard to changes in reproductive mode and dispersal ability. To address these gaps, we used RNA sequencing and phylogenomic analysis of transcriptomes to reconstruct evolutionary relationships and infer divergence times within the phylum. We recovered a fully resolved and well-supported phylogeny for the circum-Antarctic family Peripatopsidae, which retains signals of Gondwanan vicariance and showcases the evolutionary lability of reproductive mode in the family (with at least two transitions to oviparity and multiple forms of viviparity). Within the Neotropical clade of Peripatidae, though, we found that amino acid-translated sequence data masked nearly all phylogenetic signal, resulting in highly unstable and poorly supported relationships. Analyses using nucleotide sequence data were able to resolve many more relationships, though we still saw discordant phylogenetic signal between genes, indicative of a rapid, Late Cretaceous–early Paleogene radiation in the group. Finally, we hypothesize that the unique reproductive mode of placentotrophic viviparity within the Neotropical peripatids may have facilitated the multiple inferred instances of over-water dispersal and establishment on oceanic islands.