The species of the Strashilidae (strashilids) have been the most perplexing of fossil insects from the Jurassic period of Russia and China. They have been widely considered to be ectoparasites of pterosaurs or feathered dinosaurs, based on the putative presence of piercing and sucking mouthparts and hind tibio-basitarsal pincers purportedly used to fix onto the host's hairs or feathers. Both the supposed host and parasite occur in the Daohugou beds from the Middle Jurassic epoch of China (approximately 165 million years ago). Here we analyse the morphology of strashilids from the Daohugou beds, and reach markedly different conclusions; namely that strashilids are highly specialized flies (Diptera) bearing large membranous wings, with substantial sexual dimorphism of the hind legs and abdominal extensions. The idea that they belong to an extinct order is unsupported, and the lineage can be placed within the true flies. In terms of major morphological and inferred behavioural features, strashilids resemble the recent (extant) and relict members of the aquatic fly family Nymphomyiidae. Their ontogeny are distinguished by the persistence in adult males of larval abdominal respiratory gills, representing a unique case of paedomorphism among endopterygote insects. Adult strashilids were probably aquatic or amphibious, shedding their wings after emergence and mating in the water.