Dentatherina merceri was compared with representatives of the superfamilies Phallostethoidea and Atherinoidea to determine whether Dentatherinidae is a sister group of the phallostethids. Histological examination of the labial nodules in D. merceri reveals that they have calcified cores with an outer cartilagenous rim. Fibrous connective tissue is known to change to hyaline or calcified cartilage or bone in response to stress in vertebrates. The nodules therefore, in the light of distinct histological morphological differences as well as from knowledge of morphogenetic processes, are not regarded as homologues of the paradentary in phallostethid fishes. It is believed that the presence of submaxillary bones in both of the above groups is a case of character convergence. Since parietals are absent in all Atherininae and most Australian atherinoids, this character is not unique to the phallostethids and Dentatherina. Absence of the dorsal postcleithrum is not unique to Dentatherina, and the phallostethids and is therefore not regarded as a derived character establishing relationship. On the basis of the overall similarities of the first dorsal fin, interdorsal pterygiophores, the pelvic girdle, the supracleithrum, dorsal and ventral hypohyals, infraorbitals, and temporal canal, Dentatherina appears to share greater affinities with the Old World atherinoids than pallostethoids. As there is presently no evidence available to distinguish Taeniomembradinae from Atherininae, any affinities implied by Parenti (1984) between Dentatherina and the former, can also be regarded as affinities with the latter. Parenti''s (1984) elevation of Dentatherininae to Dentatherinidae is accepted since this family can be distinguished from all other atherinoids by the presence of large lateral wings of the parasphenoid; maxilla with large spatulate process; anteriorly directed basal spine of the parhypural, one epural; and elongated ventral postcleithrum. The relationships of the phallostethoids may lie with fishes which are currently recognized as members of the family Melanotaeniidae. Further work is required to establish if this is so.