The Xenarthra, particularly the Tardigrada, are with the Notoungulata and Marsupialia among the most diversified South American mammals. Lujanian South American Land Mammal Age localities from the coastal Piedra Escrita site and Andean Casa del Diablo Cave, Peru, have yielded three specimens of the Megalonychidae Diabolotherium nordenskioldi gen. nov. This singular fossil sloth exhibits a peculiar mosaic of cranial and postcranial characters. Some are considered convergent with those of other sloths (e.g. 5/4 quadrangular teeth, characteristic of Megatheriidae), whereas others clearly indicate climbing capabilities distinct from the suspensory mode of extant sloths. The arboreal mode of life of D. nordenskioldi is suggested by considerable mobility of the elbow, hip, and ankle joints, a posteriorly convex ulna with an olecranon shorter than in fossorial taxa, a radial notch that faces more anteriorly than in other fossil sloths and forms an obtuse angle with the coronoid process (which increases the range of pronation– supination), a proximodistally compressed scaphoid, and a wide range of digital flexion. D. nordenskioldi underscores the great adaptability of Tardigrada: an arboreally adapted form is now added to the already known terrestrial, subarboreal, and aquatic (marine and freshwater) fossil sloths. A preliminary phylogenetic analysis of the Tardigrada confirmed the monophyly of Megatherioidea, Nothrotheriidae, Megatheriidae, and Megalonychidae, in which Diabolotherium is strongly nested.