Central to the debate over the extinction of many of Australia’s last surviving megafauna is the question: Was climate changing significantly when humans arrived and megafauna went extinct? Here we present a new perspective on variations in climate and water resources over the last glacial cycle in arid Australia based on the study of the continent’s largest lake basin and its tributaries. By dating paleoshorelines and river deposits in the Lake Eyre basin, we show that major hydrological change caused previously overflowing megalakes to enter a final and catastrophic drying phase at 48 ± 2 ka just as the giant bird, Genyornis newtoni, went extinct (50–45 ka). The disappearance of Genyornis and other megafauna has been previously attributed to “ecosystem collapse” coincident with the spread of fire-wielding humans. Our findings suggest a climate-driven hydrological transformation in the critical window of human arrival and megafaunal extinction, and the results call for a re-evaluation of a human-mediated cause for such extinctions in arid Australia.