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Reciprocal transplant experiments have often provided evidence of local adaptation in temperate plants, but few such studies have been conducted in the tropics. To enhance our knowledge of local adaptation in tropical plants, we studied natural populations of two recently diverged Neotropical plant species, Costus allenii and C. villosissimus, in central Panama. We found that these species display a parapatric distribution that reflects local environmental differences on a fine geographic scale: C. allenii is found along ravines in the understory of primary forest, while C. villosissimus is found along forest edges. Light availability was lower in C. allenii habitats, while precipitation and soil moisture were lower in C. villosissimus habitats. We carried out reciprocal transplant experiments with seeds and clones of mature plants to test the hypothesis that the parapatric distribution of these species is due to divergent adaptation to their local habitats. We found strong evidence of local adaptation, i.e., when grown in their ''home'' sites, each species outperformed the species from an ''away'' site. Our finding that C. allenii and C. villosissimus are mainly isolated by their microhabitats provides a first step toward understanding the mechanisms of adaptation and speciation in the tropics. [ABSTRACT FROM AUTHOR]