A hybrid zone along an environmental gradient should contain a clinal pattern of genetic and phenotypic variation. This occurs because divergent selection in the two parental habitats is typically strong enough to overcome the homogenizing effects of gene flow across the environmental transition. We studied hybridization between two parapatric tree squirrels (Tamiasciurus spp.) across a forest gradient over which the two species vary in coloration, cranial morphology and body size. We sampled 397 individuals at 29 locations across a 600-km transect to seek genetic evidence for hybridization; upon confirming hybridization, we examined levels of genetic admixture in relation to maintenance of phenotypic divergence despite potentially homogenizing gene flow. Applying population assignment analyses to microsatellite data, we found that Tamiasciurus douglasii and T. hudsonicus form two distinct genetic clusters but also hybridize, mostly within transitional forest habitat. Overall, based on this nuclear analysis, 48% of the specimens were characterized as T. douglasii, 9% as hybrids and 43% as T. hudsonicus. Hybrids appeared to be reproductively viable, as evidenced by the presence of later-generation hybrid genotypes. Observed clines in ecologically important phenotypic traits—fur coloration and cranial morphology—were sharper than the cline of putatively neutral mtDNA, which suggests that divergent selection may maintain phenotypic distinctiveness. The relatively recent divergence of these two species (probably late Pleistocene), apparent lack of prezygotic isolating mechanisms and geographic coincidence of cline centres for both genetic and phenotypic variation suggest that environmental factors play a large role in maintaining the distinctiveness of these two species across the hybrid zone.