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Predation risk influences prey use of space. However, little is known about how predation risk influences breeding habitat selection and the fitness consequences of these decisions. The nest sites of central-place foraging predators may spatially anchor predation risk in the landscape. We explored how the spatial dispersion of avian predator nests influenced prey territory location and fitness related measures. We placed 249 nest boxes for migrant pied flycatchers Ficedula hypoleuca, at distances between 10 and 630 m, around seven different sparrowhawk nests Accipiter nisus. After closely monitoring flycatcher nests we found that flycatcher arrival dates, nest box occupation rates and clutch size showed a unimodal relationship with distance from sparrowhawk nests. This relationship suggested an optimal territory location at intermediate distances between 330 and 430 m from sparrowhawk nests. Furthermore, pied flycatcher nestling quantity and quality increased linearly with distance from sparrowhawk nests. These fitness related measures were between 4 and 26% larger in flycatcher nestlings raised far from, relative to those raised nearby, sparrowhawk nests. Our results suggest that breeding sparrowhawk affected both flycatcher habitat selection and reproductive success. We propose that nesting predators create predictable spatial variation in predation risk for both adult prey and possibly their nests, to which prey individuals are able to adaptively respond. Recognising predictable spatial variation in perceived predation risk may be fundamental for a proper understanding of predator-prey interactions and indeed prey species interactions.