Current models of signal evolution explain diversity by invoking a variety of social, perceptual and environmental factors. Social systems and spacing patterns determine the active space of signals and their function. Receiver sensory systems and habitat characteristics interact to constrain signal design. These factors are traditionally implicated in promoting directional evolutionary change, leading to increases or decreases in signal complexity. We examine macro-evolutionary trends in signal design, as reflected by display modifier repertoire size, for 124 species of iguanian lizards to identify the importance of ecological factors in display evolution. Possessing a small home range, being arboreal and feeding on moving prey are all correlated with the evolution of large repertoires. However, living in closed habitats is associated with increased evolutionary change in repertoire size, producing greater signal diversity. Ecological factors can thus act either directionally or to promote evolutionary lability. © 2002 The Linnean Society of London, Biological Journal of the Linnean Society, 2002, 77, 127–148.