Southwest China is characterized by high plateaus, large mountain systems, and deeply incised dry valleys formed by major rivers and their tributaries. Despite the considerable attention given to alpine plant radiations in this region, the timing and mode of diversification of the numerous dry valley plant lineages remain unknown. To address this knowledge gap, we investigated the macroevolution of Isodon (Lamiaceae), a lineage commonly distributed in the dry valleys in southwest China and wetter areas of Asia and Africa. We reconstructed a robust phylogeny encompassing nearly 90% of the approximately 140 extant Isodon species using transcriptome and genome-resequencing data. Our results suggest a rapid radiation of Isodon during the Pliocene that coincided with a habit shift from herbs to shrubs and a habitat shift from humid areas to dry valleys. The shrubby growth form likely acted as a preadaptation allowing for the movement of Isodon species into these dry valleys. Ecological analyses highlight drought-related factors as key drivers influencing the niche preferences of different growth forms and species richness of Isodon. The interplay between topography and the development of the East Asian monsoon since the middle Miocene likely contributed to the formation of the dry valley biome in southwest China. This study enhances our understanding of evolutionary dynamics and ecological drivers shaping the distinctive flora of southwest China and reveals the strategies employed by montane plants in response to climate change and dryland expansion, thus facilitating conservation efforts globally.