Character displacement – trait evolution stemming from competition between species for resources – has long been thought to play a critical role in promoting diversification. Yet, causal evidence linking resource competition to species divergence is scarce. I evaluated if and how competition promotes species divergence by studying two species of spadefoot toad tadpoles that respond to competitors through phenotypic plasticity. In ponds containing both species, one species, Spea multiplicata, almost always developed into a smaller, round-bodied tadpole with normal sized jaw muscles that feeds on detritus on the pond bottom (the omnivore morph), whereas the other species, S. bombifrons, almost always developed into a larger, flat-headed tadpole with greatly enlarged jaw muscles that feeds on crustaceans in open water (the carnivore morph). By contrast, in similar ponds containing a single species, both species expressed both phenotypes. In controlled experiments, I found that S. multiplicata became increasingly more omnivore-like as I increased the relative abundance of S. bombifrons, whereas S. bombifrons became increasingly more omnivore-like as I increased the relative abundance of S. multiplicata. Phenotypic plasticity helped mediate this divergence: Spea multiplicata became increasingly less likely to eat shrimp and develop into carnivores in the presence of S. bombifrons, a superior predator on shrimp. However, divergence also reflected differences in canalized traits: When reared under common conditions, S. multiplicata tadpoles became increasingly less likely to produce carnivores as their natal pond decreased in elevation. Presumably, this pattern reflected selection against carnivores in lower elevation ponds, because S. bombifrons became increasingly more common with decreasing elevation. These results suggest that the degree of character displacement potentially reflects the intensity of competition between interacting species and that both phenotypic plasticity and fine-scale genetic differentiation can mediate this response. Moreover, these results provide causal evidence linking resource competition to species divergence.