The late Eocene ‘soft’ sponge fauna of southern Australia is reconstructed based on disassociated spicules and is used to interpret the paleoecology and environmental context of shallow marine communities in this region. The reconstructed sponge association was compared with coeval sponge assemblages from the Oamaru Diatomite, New Zealand, and with the modern ‘soft’ sponge fauna of southern coastal of Australia. Based on the predominance of shallow- and moderately shallow-water species, the late Eocene assemblage is interpreted to have inhabited waters depths of about 100 m. This contrast with the spicule assemblage from New Zealand, which characterized deeper waters based on the presence of numerous strictly deep-water sponge taxa, and the absence of spicules of shallow-water demosponges represented in the Australian material. The southern Australian Eocene sponge assemblages have clear Tethyan affinities evidenced by the occurrence of sponges known today from diverse regions. This distribution suggests much wider geographical ranges of some sponge taxa during the Eocene. Their present distributions may be relictual. The modern sponge fauna inhabiting southern Australian waters shows only moderate differences from these of the late Eocene. Differences are more pronounced at lower taxonomic levels (family and genus).