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Biological species may remain distinct because of genetic isolation or ecological adaptation, but these two aspects do not always coincide. To establish the nature of the species boundary within a local bacterial population, we characterized a sympatric population of the bacterium Rhizobium leguminosarum by genomic sequencing of 72 isolates. Although all strains have 16S rRNA typical of R. leguminosarum, they fall into five genospecies by the criterion of average nucleotide identity (ANI). Many genes, on plasmids as well as the chromosome, support this division: recombination of core genes has been largely within genospecies. Nevertheless, variation in ecological properties, including symbiotic host range and carbon-source utilization, cuts across these genospecies, so that none of these phenotypes is diagnostic of genospecies. This phenotypic variation is conferred by mobile genes. The genospecies meet the Mayr criteria for biological species in respect of their core genes, but do not correspond to coherent ecological groups, so periodic selection may not be effective in purging variation within them. The population structure is incompatible with traditional 'polyphasic taxonomy' that requires bacterial species to have both phylogenetic coherence and distinctive phenotypes. More generally, genomics has revealed that many bacterial species share adaptive modules by horizontal gene transfer, and we envisage a more consistent taxonomic framework that explicitly recognizes this. Significant phenotypes should be recognized as 'biovars' within species that are defined by core gene phylogeny.