Relationships among families of the lower Diptera (suborder ‘Nematocera’) have been exceptionally difficult to resolve. The status of families assigned to various infraorders is unstable and the inter-relationships between infraorders are even less clear. Multiple hypotheses have been proposed identifying the earliest fly lineages and placing the phylogenetic origin of the higher flies (Brachycera), but convincing support is still limited. Here we provide further evidence on the relationships between families of nematocerous Diptera based on molecular data from two genes (28S ribosomal DNA and CAD) and published morphological data; all traditional nematocerous fly families were included. Our analyses provide support for new and existing hypotheses about fly evolution and classification. The earliest lineage appears to be either the family Deuterophlebiidae (mountain midges) or Nymphomyiidae, both morphologically enigmatic among flies. Three major infraorders are supported: the Culicomorpha (containing all traditional families and, perhaps, the Ptychopteridae), a Psychodomorpha defined as (Blephariceridae (Tanyderidae + Psychodidae)) and a Bibionomorpha containing all other families except the Tipulidae s.l. and Trichoceridae. The positions of Ptychopteridae, Axymyiidae, Trichoceridae and Tipulidae s.l. are still uncertain. The Brachycera appear to have affinities to the Bibionomorpha. New support for some traditionally uncertain groupings suggests that molecular data will be required to ultimately stabilize a phylogenetic classification for these earliest lineages of extant flies.