As in Australia, the South American fauna was able to evolve in isolation for much of the Tertiary period. A unique fauna including both marsupials and placental mammals evolved.
The formation of the Isthmus of Panama (around 3 myr) enabled the South American fauna to migrate north, back into North America where they had first come from millions of years earlier. This explains the origin of marsupials found today in Central and North America.
Position of the continents today, showing the Isthmus of Panama connecting North and South America.
However migration was two-way, with North American species also migrating southwards, forever changing the South American fauna. North American species initially out-competed the South American fauna. This was because North America had been connected to Europe, which was in turn connected to Africa, for large periods in the past whilst South American had been isolated. This meant the North American fauna had evolved in a larger and more competitive area and so had evolved more efficient forms.
South American marsupials were further affected by the terminal Pleistocene extinctions of terrestrial mammal megafauna.
The South American marsupials today now thrive in competition with placental mammals, exploiting a wide range of diets and habitats.