The name Megalania prisca was coined in 1859 by Sir Richard Owen to mean "ancient great roamer"; the name was chosen "in reference to the terrestrial nature of the great Saurian". Owen used a modification of the Greek word ἠλαίνω ēlainō ("I roam"). The close similarity to the Latin word: lania (feminine form of "butcher") has resulted in numerous taxonomic and popular descriptions of megalania mistranslating the name as: ancient giant butcher.
Owen introduced the genus Megalania to accommodate the species Megalania prisca. Its status as a valid genus remains controversial, with many authors preferring to consider it a junior synonym of Varanus, which encompasses all living monitor lizards. As the gender of the genera Megalania and Varanus are respectively feminine and masculine, the specific name prisca (fem.)/priscus (masc.) follows suit.
The genus Megalania is included as a synonym of Varanus by many researchers due to the relationships of the many Varanus species; M. prisca is closely related to other Australian monitors classified as Varanus, so excluding M. prisca from Varanus renders the latter genus an unnatural grouping. Ralph Molnar noted in 2004 that, even if every species of the genus Varanus were divided into groups currently designated as subgenera, V. priscus would still be classified in the genus Varanus, because this is the current subgenus name, as well as genus name, for all Australian monitors. Unless other Australian monitor species were each also classified their own exclusive genera, Megalania would not be a valid genus name. However, Molnar noted that "megalania" is suitable for use as a vernacular, rather than scientific name, for the species Varanus priscus.
Several studies have attempted to establish the phylogenetic position of megalania within the Varanidae. An affinity with the perentie, Australia's largest living lizard, has been suggested based on skull-roof morphology. The most recent comprehensive study proposes a sister-taxon relationship with the Komodo dragon based on neurocranial similarities, with the lace monitor as the closest living Australian relative. Conversely, the perentie is considered more closely related to the Gould's and argus monitors.
The lack of complete or nearly complete fossil skeletons has made it difficult to determine the exact dimensions of megalania. Early estimates placed the length of the largest individuals at 7 m (23 ft), with a maximum weight of approximately 600–620 kg (1,320–1,370 lb). However, more recent and more rigorous studies give very different results from one another.
In 2002, Stephen Wroe determined that the species had a maximum length of 4.5 m (15 ft) and a weight of 331 kg (730 lb), while its average length would have been around 3.5 m (11 ft), and mean body weight would have been between 97–158 kg (214–348 lb). He concluded that the earlier estimates reaching lengths of 6 m (20 ft) or more and a weight of several tons were exaggerations based on flawed methods. A study published in 2009 utilizing Wroe's size estimates and an analysis of 18 closely related lizard species estimated a sprinting speed of 2.6–3 m/s (5.8–6.7 mph). This speed is comparable to that of the extant freshwater crocodile (Crocodylus johnstoni).
However, Ralph Molnar in 2004 determined a range of potential sizes for megalania, made by scaling up from dorsal vertebrae, after he determined a relationship between dorsal vertebrae width and total body length. If it had a long thin tail like the lace monitor (Varanus varius), then it would have reached a length of 7.9 metres (26 ft), while if its tail-to-body proportions were more similar to that of the Komodo dragon (Varanus komodoensis), then a length of around 7 m (23 ft) is more likely. Taking the maximal 7 m (23 ft) length, he estimated a weight of 1,940 kg (4,280 lb), with a leaner 320 kg (710 lb) being average.