The role of competition in habitat occupation and character displacement is investigated in two species of alpine lizards (Niveoscincus microlepidotus and N. greeni), using both controlled competition experiments and field-based ecological work. Competition experiments demonstrate that interspecific aggression occurs between these closely related species, with the larger and more aggressive N. greeni being socially dominant. When these species occur in sympatry, N. microlepidotus was found to shift its habitat occupation to the heathlands, which provide less thermal opportunities. In addition, a reduction in body size occurred in both adult and neonatal N. microlepidotus at sympatric field sites. Differences in body size between N. microlepidotus and N. greeni in sympatry were significantly greater than in allopatry, indicating that character displacement is occurring. Results, combined with previous molecular and biogeographical data, suggest that there is a trend towards a reduction in body size and a restriction in habitat occupation in N. microlepidotus in the north-east periphery of its distribution, which is shaped by competition with N. greeni.