Range size is a universal characteristic of every biological species, and is often assumed to determine diversification rate. However, the relationship between range size and past and future diversification of species remains elusive. On one hand, there are strong theoretical arguments that large-ranged species should have higher rates of diversification. On the other hand, the observation that small-ranged species are often phylogenetically clustered and form spatially localized diversity hotspots indicates high diversification of small-ranged species. We use a cladogenetic state-dependent diversification model applied to mammals to show that in general, small-ranged species indeed diversify slower, as theoretically expected. However, this pattern is reversed in many mammalian taxa. The ancestral state reconstructions suggest that both range size evolution and diversification are strongly influenced by idiosyncratic and spatially localized events, such as colonization of an archipelago or a mountain system, which often overdrive the general pattern of range size evolution.