The population history of Aboriginal Australians remains largely uncharacterized. Here we generate high-coverage genomes for 83 Aboriginal Australians (speakers of Pama-Nyungan languages) and 25 Papuans from the New Guinea Highlands. We find that Papuan and Aboriginal Australian ancestors diversified 25-40 thousand years ago (kya), suggesting pre-Holocene population structure in the ancient continent of Sahul (Australia, New Guinea and Tasmania). However, all of the studied Aboriginal Australians descend from a single founding population that differentiated ~10-32 kya. We infer a population expansion in northeast Australia during the Holocene epoch (past 10,000 years) associated with limited gene flow from this region to the rest of Australia, consistent with the spread of the Pama-Nyungan languages. We estimate that Aboriginal Australians and Papuans diverged from Eurasians 51-72 kya, following a single out-of-Africa dispersal, and subsequently admixed with archaic populations. Finally, we report evidence of selection in Aboriginal Australians potentially associated with living in the desert.