Taylor’s power law, i.e. that the slope for the increase in variance with mean population size is between 1 and 2 at a logarithmic scale, provides one of the few quantitative relationships in population ecology, yet the underlying ecological mechanisms are only poorly understood. Stochastic theory of population dynamics predicts that demographic and environmental stochasticity will affect the slope differently. In a stable environment under the influence of demographic stochasticity alone the slope will be equal to 1. In large populations in which demographic variance will have a negligible effect on the dynamics the slope will approach 2. In addition, the slope will also be influenced by how the strength of density dependence is related to mean population size. To disentangle the relative contribution of these processes we estimate the mean-variance relationship for a large number of populations of British birds. The variance in population size of most species decreased with the mean due to decreased influence of demographic stochasticity at larger population sizes. Interspecific differences in demographic stochasticity was the main factor influencing variation in slopes of Taylor’s power law among species through a significant negative relationship between the slope and demographic variance. In addition, slopes were influenced by interspecific variation in life history parameters such as adult survival and clutch size. These analyses show that Taylor’s power law is generated from an interplay between stochastic and density dependent factors, modulated by life history.