Large Oligocene Antarctic ice sheets co-existed with warm adjacent ocean waters. To provide a broad Southern Ocean perspective to such warmth, we reconstruct the strength and variability of the Oligocene Australian-Antarctic latitudinal sea surface temperature (SST) gradient. Our Oligocene TEX86-based SST record from offshore southern Australia shows temperate (20–29°C) conditions throughout, despite northward tectonic drift. A persistent SST gradient (~5–10°C) exists between Australia and Antarctica, which becomes larger during glacial maxima. The SST gradient increases from ~26 Ma onwards, due to decreasing Antarctic-proximal SSTs. Meanwhile, benthic foraminiferal oxygen isotope decline indicates ice loss/deep-sea warming. These contrasting patterns are difficult to explain by greenhouse gas forcing alone. Timing of the SST cooling coincides with deepening of Drake Passage and fits well with results of ocean model experiments, suggesting Antarctic-proximal cooling. We conclude that Drake Passage deepening cooled Antarctic coastlines which enhanced thermal isolation of the Antarctic ice sheet.