We propose a new mechanism for diversification of male nuptial–colour patterns in the rapidly speciating cichlid fishes of Lake Victoria. Sympatric closely related species often display nuptial colours at opposite ends of the spectrum with males either blue or yellow to red. Colour polymorphisms within single populations are common too. We propose that competition between males for breeding sites promotes such colour diversification, and thereby speciation. We hypothesize that male aggression is primarily directed towards males of the common colour, and that rare colour morphs enjoy a negatively frequency–dependent fitness advantage. We test our hypothesis with a large dataset on the distributions and nuptial colorations of 52 species on 47 habitat islands in Lake Victoria, and with a smaller dataset on the within–spawning–site distributions of males with different coloration. We report that territories of males of the same colour are negatively associated on the spawning site, and that the distribution of closely related species over habitat islands is determined by nuptial coloration in the fashion predicted by our hypothesis. Whereas among unrelated species those with similar nuptial colour are positively associated, among closely related species those with similar colour are negatively associated and those with different colour are positively associated. This implies that negatively frequency–dependent selection on nuptial coloration among closely related species is a sufficiently strong force to override other effects on species distributions. We suggest that male–male competition is an important and previously neglected agent of diversification among haplochromine cichlid fishes.