Interspecific competition between red squirrels and grey squirrels was investigated by comparing the population demography, spacing behavior and habitat use of red squirrels in two large conifer plantations in northern England: one site had only red squirrels (the ‘red-only’ site), in the other both red and grey squirrels occurred (the ‘red–grey’ site). Despite more abundant food at the red–grey site, red squirrel densities (0.26 ha−1 at the red–grey site, 0.29 ha−1 at the red-only site), adult survival rates and the breeding rates of females were similar at both study sites. Grey squirrels at the red–grey site occurred at higher densities (0.92–1.1 ha−1) than did the reds and tended to have higher breeding rates. In the presence of grey squirrels, the recruitment pattern of red squirrels changed and there was little recruitment of subadults. The juvenile recruitment rate in the red–grey site (13%) was much lower than in the red-only site (50%). Grey squirrels, in contrast, had higher juvenile recruitment rates at the red–grey site (41%). The core areas of the home ranges of red squirrels in the red–grey site were more strongly overlapped by grey squirrels than by conspecifics. Red squirrels did not select the habitat with the best tree seed crop (Scots pine) but preferred dense Sitka spruce plantations; they appeared to avoid the Scots pine area with its high grey squirrel density. Data on foot length and body condition indicated decreased body growth in young red squirrels when grey squirrels were present. Our data suggest that adult red squirrels suffered little from interspecific competition with grey squirrels and that the key factor is decreased juvenile recruitment in red squirrels.