Studies of the patterns of diversification of birds on islands have contributed a great deal to the development of evolutionary theory. In white–winged fairy–wrens, Malurus leucopterus, mainland males develop a striking blue nuptial plumage whereas those on nearby islands develop black nuptial plumage. We explore the proximate basis for this divergence by combining microstructural feather analysis with an investigation of genetic variation at the melanocortin–1 receptor locus (MC1R). Fourier analysis revealed that the medullary keratin matrix (spongy layer) of the feather barbs of blue males was ordered at the appropriate nanoscale to produce the observed blue colour by coherent light scattering. Surprisingly, the feather barbs of black males also contained a spongy layer that could produce a similar blue colour. However, black males had more melanin in their barbs than blue males, and this melanin may effectively mask any structural colour produced by the spongy layer. Moreover, the presence of this spongy layer suggests that black island males evolved from a blue–plumaged ancestor. We also document concordant patterns of variation at the MC1R locus, as five amino acid substitutions were perfectly associated with the divergent blue and black plumage phenotypes. Thus, with the possible involvement of a melanocortin receptor locus, increased melanin density may mask the blue–producing microstructure in black island males, resulting in the divergence of plumage coloration between mainland and island white–winged fairy–wrens. Such mechanisms may also be responsible for plumage colour diversity across broader geographical and evolutionary scales.