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Cichlids in the genus Danakilia, endemic to the hyper-arid Danakil Depression of Eritrea and Ethiopia, represent a rare example of diversification in one of Earth’s most extreme aquatic environments. While previous mitochondrial and morphological studies have identified two species (D. franchettii and D. dinicolai), the evolutionary history of this clade remains poorly resolved. Here, we use genome-wide SNP data from 85 individuals of Danakilia, sampled across six sites to infer phylogenetic relationships, assess population structure, and explore the role of historical hydrology in shaping diversification within the genus. We analyzed double-digest RAD-seq data to generate maximum likelihood phylogenies, PCA, and admixture profiles, and calculated pairwise FST values to assess genetic differentiation. Our results support strong phylogenetic and population-level differentiation between the two described species and three additional riverine populations, with four to five discrete genetic clusters identified. Phylogenetic analyses confirm the monophyly of D. dinicolai and reveal that all riverine populations form a well-supported clade sister to D. dinicolai, suggesting a shared origin. In contrast, D. franchettii is not monophyletic, and populations from southern spring habitats near Lake Afrera show limited genetic structure. Patterns of genetic divergence are broadly consistent with a paleohydrological model in which a mid-Holocene lake system connected the northern and southern Danakil Depression, facilitating gene flow among now-isolated habitats. We also detect varying levels of admixture among the northern populations, with evidence of historical gene flow between the crater lake and riverine populations. Despite their close geographic proximity, the three riverine populations are genetically distinct and may represent independent evolutionary units. These findings suggest a complex interplay of historical connectivity, geographic isolation, and adaptation to extreme environmental gradients in driving divergence within Danakilia. Given emerging environmental threats in the region, our results underscore the urgent need for conservation attention and further exploration of unsampled populations to fully characterize the evolutionary and ecological diversity of this little-known lineage.