BACKGROUND AND AIMS: To better understand C4 evolution in monocots, we characterized C3-C4 intermediate phenotypes in the grass genus Homolepis (subtribe Arthropogoninae). METHODS: Carbon isotope ratio (δ13C), leaf gas exchange, mesophyll (M) and bundle sheath (BS) tissue characteristics, organelle size and numbers in M and BS tissue, and tissue distribution of the P-subunit of glycine decarboxylase (GLDP) were determined for five Homolepis species and the C4 grass Mesosetum loliiforme from a phylogenetic sister clade. We generated a transcriptome-based phylogeny for Homolepis and Mesosetum species to interpret physiological and anatomical patterns in an evolutionary context, and to test for hybridization. KEY RESULTS: Homolepis contains two C3 species (H. glutinosa, H. villaricensis), one species with a weaker form of C2 termed sub-C2 (H. isocalycia), and two C2 species (H. longispicula, H. aturensis). Homolepis longispicula and H. aturensis express over 85 % of leaf glycine in centripetal mitochondria within the BS, and have increased fractions of leaf chloroplasts, mitochondria and peroxisomes within the BS relative to H. glutinosa. Analysis of leaf gas exchange, cell ultrastructure and transcript expression show M. loliiforme is a C4 plant of the NADP-malic enzyme subtype. Homolepis comprises two sister clades, one containing H. glutinosa and H. villaricensis and the second H. longispicula and H. aturensis. Homolepis isocalycia is of hybrid origin, its parents being H. aturensis and a common ancestor of the C3 Homolepis clade and H. longispicula. CONCLUSIONS: Photosynthetic activation of BS tissue in the sub-C2 and C2 species of Homolepis is similar to patterns observed in C3-C4 intermediate eudicots, indicating common evolutionary pathways from C3 to C4 photosynthesis in these disparate clades. Hybridization can diversify the C3-C4 intermediate character state and should be considered in reconstructing putative ancestral states using phylogenetic analyses.