In recent years, a number of phylogenetic methods have been developed for estimating molecular rates and divergence dates under models that relax the molecular clock constraint by allowing rate change throughout the tree. These methods are being used with increasing frequency, but there have been few studies into their accuracy. We tested the accuracy of several relaxed-clock methods (penalized likelihood and Bayesian inference using various models of rate change) using nucleotide sequences simulated on a nine-taxon tree. When the sequences evolved with a constant rate, the methods were able to infer rates accurately, but estimates were more precise when a molecular clock was assumed. When the sequences evolved under a model of auto-correlated rate change, rates were accurately estimated using penalized likelihood and by Bayesian inference using lognormal and exponential models of rate change, while other models did not perform as well. When the sequences evolved under a model of uncorrelated rate change, only Bayesian inference using an exponential rate model performed well. Collectively, the results provide a strong recommendation for using the exponential model of rate change if a conservative approach to divergence time estimation is required. A case study is presented in which we use a simulation-based approach to examine the hypothesis of elevated rates in the Cambrian period, and it is found that these high rate estimates might be an artifact of the rate estimation method. If this bias is present, then the ages of metazoan divergences would be systematically underestimated. The results of this study have implications for studies of molecular rates and divergence dates.