Recent phylogenetic analyses of demosponges have suggested that the order Poecilosclerida is monophyletic and nested within the paraphyletic ‘order’ Hadromerida. Until now, this result has rested upon very limited taxon sampling of SSU sequences and partial LSU sequences. We collected and analysed additional full-length SSU and LSU sequences to test the validity and position of the poecilosclerid/hadromerid clade within demosponges, and we sampled a short segment of the LSU from diverse hadromerids to explore the internal relationships of Hadromerida. Our data strongly support the existence of a hadromerid/poecilosclerid clade that is sister to a poorly characterized group of halichondrid and agelasid species (‘Clade C’). We find support for the monophyly of the hadromerid families Polymastiidae, Placospongiidae and Timeidae, and conditional support for the family Suberitidae. Furthermore, both LSU and SSU data support a clade that includes a mixture of species assigned to the families Tethyidae and Hemiasterellidae (TETH/HEM) and a mixed clade including members of the families Clionaidae and Spirastrellidae (CLIO/SPIR). The family Placospongiidae is reconstructed as sister to the clade CLIO/SPIR and the family Timeidae is supported as sister to the clade TETH/HEM. The order Poecilosclerida is most closely allied with the Placospongiidae/CLIO/SPIR clade.