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Foundation (dominant or matrix) species play a key role in structuring plant communities, influencing processes from population to ecosystem scales. However, the effects of genotypic diversity of foundation species on these processes have not been thoroughly assessed in the context of assembling plant communities. We modified the classical filter model of community assembly to include genotypic diversity as part of the biotic filter. We hypothesized that the proportion of fit genotypes (i.e. competitively superior and dominant) affects niche space availability for subordinate species to establish with consequence for species diversity. To test this hypothesis, we used an individual-based simulation model where a foundation species of varying genotypic diversity (number of genotypes and variability among genotypes) competes for space with subordinate species on a spatially heterogeneous lattice. Our model addresses a real and practical problem in restoration ecology: choosing the level of genetic diversity of re-introduced foundation and subordinate species. Genotypic diversity of foundation species significantly affected equilibrium community diversity, measured as species richness, either positively or negatively, depending upon environmental heterogeneity. Increases in genotypic diversity gave the foundation species a wider niche breadth. Under conditions of high environmental heterogeneity, this wider niche breadth decreased niche space for other species, lowering species richness with increased genotypic diversity until the genotypes of the foundation species saturated the landscape. With a low level of environmental heterogeneity, increasing genotypic diversity caused the foundation species niche breadth to be overdispersed, resulting in a weak positive relationship with species richness. Under these conditions, some genotypes are maladapted to the environment lowering fitness of the foundation species. These effects of genotypic diversity were secondary to the larger effects of overall foundation species fitness and environmental heterogeneity. The novel aspect of incorporating genotype diversity in combination with environmental heterogeneity in community assembly models include predictions of either positive or negative relationships between species diversity and genotypic diversity depending on environmental heterogeneity, and the conditions under which these factors are potentially relevant. Mechanistically, differential niche availability is imposed by the foundation species.