The modern Australian koala (Phascolarctos cinereus) is commonly regarded as a dwarf descendent of a Late Pleistocene giant koala (Ph. stirtoni). The implication of that hypothesis is that the giant koala survived the Late Pleistocene megafaunal extinction “event”, albeit as a smaller body-sized form. It is important to be able to constrain rates of Late Pleistocene faunal turnover, an aspect reliant on having accurate taxonomic information of extinct species. The koala dwarfing hypothesis is tested here by using a temporally-constrained biogeographical record of fossil koalas, and a morphological character analysis. The contemporary occurrence of both taxa in pre-Late Pleistocene deposits and significant differences in dental morphologies between those forms suggests that the modern koala is not a derived dwarf of the Pleistocene giant koala. Thus, the giant-form was among a number of other giant mammals, lizards and birds that suffered extinction sometime during the Late Pleistocene. The potential phenomenon of dwarfing of other Late Pleistocene and Recent faunas, such as grey kangaroos, is commonly used as a test for or against various megafaunal extinction hypotheses. However, the results of this study also demonstrate that the dwarfing hypothesis has not been adequately tested for a suite of other taxa. Thus, until the dwarfing hypothesis can be more fully tested, a clear understanding of the fate of Late Pleistocene faunas that apparently survived the extinction “event”, and the origins of many extant forms will remain elusive.