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There is significant geographic variation in species richness. However, the nature of the underlying relationships, such as that between species richness and environmental stability, remains unclear. The stability-time hypothesis suggests that environmental instability reduces species richness by suppressing speciation and increasing extinction risk. By contrast, the patch-mosaic hypothesis suggests that small-scale environmental instability can increase species richness by providing a steady supply of non-equilibrium environments. Although these hypotheses are often applied to different time scales, their core mechanisms are in conflict. Reconciling these apparently competing hypotheses is key to understanding how environmental conditions shape the distribution of biodiversity. Here, we use REvoSim, an individual-based, eco-evolutionary system, to model the evolution of sessile organisms in environments with varying magnitudes and scales of environmental instability. We demonstrate that when environments have substantial permanent heterogeneity, a high level of localized environmental instability reduces biodiversity, whereas in environments lacking permanent heterogeneity, high levels of localized instability increase biodiversity. By contrast, broad-scale environmental instability, acting on the same time scale, invariably reduces biodiversity. Our results provide a new view of the biodiversity–disturbance relationship that reconciles contrasting hypotheses within a single model and implies constraints on the environmental conditions under which those hypotheses apply. These constraints can inform attempts to conserve adaptive potential in different environments during the current biodiversity crisis.