In this work, we investigate morphological differences between Arabidopsis thaliana, which has simple leaves, and its relative Cardamine hirsuta, which has dissected leaves comprising distinct leaflets. With the use of genetics, interspecific gene transfers, and time-lapse imaging, we show that leaflet development requires the REDUCED COMPLEXITY (RCO) homeodomain protein. RCO functions specifically in leaves, where it sculpts developing leaflets by repressing growth at their flanks. RCO evolved in the Brassicaceae family through gene duplication and was lost in A. thaliana, contributing to leaf simplification in this species. Species-specific RCO action with respect to its paralog results from its distinct gene expression pattern in the leaf base. Thus, regulatory evolution coupled with gene duplication and loss generated leaf shape diversity by modifying local growth patterns during organogenesis.