The question of how genetic variation translates into organismal diversity has puzzled biologists for decades. Despite recent advances in evolutionary and developmental genetics, the mechanisms that underlie adaptation, diversification and evolutionary innovation remain largely unknown. The exceptionally diverse species flocks of cichlid fishes are textbook examples of adaptive radiation and explosive speciation and emerge as powerful model systems to study the genetic basis of animal diversification. East Africa's hundreds of endemic cichlid species are akin to a natural mutagenesis screen and differ greatly not only in ecologically relevant (hence naturally selected) characters such as mouth morphology and body shape, but also in sexually selected traits such as coloration. One of the most fascinating aspects of cichlid evolution is the frequent occurrence of evolutionary parallelisms, which has led to the question whether selection alone is sufficient to produce these parallel morphologies, or whether a developmental or genetic bias has influenced the direction of diversification. Here, I review fitness-relevant traits that could be responsible for the cichlids’ evolutionary success and assess whether these were shaped by sexual or natural selection. I then focus on the interaction and the relative importance of sexual vs. natural selection in cichlid evolution. Finally, I discuss what is currently known about the genes underlying the morphogenesis of adaptively relevant traits and highlight the importance of the forthcoming cichlid genomes in the quest of the genetic basis of diversification in this group.