Recent theory predicts that environmental variation and small population size facilitate the coexistence of alternative phenotypes despite unequal mean fitness. However, traditional studies of reproductive strategies often assume that the stability of alternative mating behaviours relies on equal male fitness. We present results from field observations and experimental manipulations of thermal resources on territories demonstrating the coexistence of alternative reproductive behaviours with unequal fitness. The side–blotched lizard Uta stansburiana exhibits two alternative strategies for territoriality:‘usurp’ and‘defend’. Paternity analysis revealed significantly greater mean fitness for‘usurpers’ than‘defenders’ in our study of natural variation. Moreover, variance in fitness was significantly higher for usurpers on both experimental and natural plots, implying that‘usurp’ is a risky strategy with potentially large pay–offs or none at all. We show theoretically that significantly higher variance in usurper fitness can allow for coexistence with defenders despite higher mean fitness of usurpers. This coexistence is facilitated by small population size. Our results have general implications for the evolution of alternative strategies and the maintenance of genetic diversity in small populations.