We employed phylogenomic methods to study molecular evolutionary processes and phylogeny in the geographically widely dispersed New World diploid cottons (Gossypium, subg. Houzingenia). Whole genome resequencing data (average of 33X genomic coverage) were generated to reassess the phylogenetic history of the subgenus and provide a temporal framework for its diversification. Phylogenetic analyses indicate that the subgenus likely originated following trans-oceanic dispersal from Africa about 6.6 mya, but that nearly all of the biodiversity evolved following rapid diversification in the mid-Pleistocene (0.5-2.0 mya), with multiple long-distance dispersals required to account for range expansion to Arizona, the Galapagos Islands, and Peru. Comparative analyses of cpDNA vs. nuclear data indicate that this history was accompanied by several clear cases of interspecific introgression. Repetitive DNAs contribute roughly half of the total 880 Mb genome, but most transposable element families are relatively old and stable among species. In the genic fraction, pairwise synonymous mutation rates average 1% per my, with non-synonymous changes being about seven times less frequent. Over 1.1 million indels were detected and phylogenetically polarized, revealing a two-fold bias toward deletions over small insertions. We suggest that this genome down-sizing bias counteracts genome size growth by TE amplification and insertions, and helps explain the relatively small genomes that are restricted to this subgenus. Compared to the rate of nucleotide substitution, the rate of indel occurrence is much lower averaging about 17 nucleotide substitutions per indel event.