Coevolutionary interactions are thought to have spurred the evolution of key innovations and driven the diversification of much of life on Earth. However, the genetic and evolutionary basis of the innovations that facilitate such interactions remains poorly understood. We examined the coevolutionary interactions between plants (Brassicales) and butterflies (Pieridae), and uncovered evidence for an escalating evolutionary arms-race. Although gradual changes in trait complexity appear to have been facilitated by allelic turnover, key innovations are associated with gene and genome duplications. Furthermore, we show that the origins of both chemical defenses and of molecular counter adaptations were associated with shifts in diversification rates during the arms-race. These findings provide an important connection between the origins of biodiversity, coevolution, and the role of gene and genome duplications as a substrate for novel traits.