Closely related species of birds often differ markedly in their color patterns. Here we examine the influence of breeding-range overlap (breeding sympatry) on the evolution of color pattern differences in a sample of closely related bird species. We used a sister-lineage method to analyze 73 phylogenetically independent comparisons among 246 species and 39 families of birds worldwide. We found that divergence of color patterns among closely related species was greater between sympatric than between allopatric lineages, but only at intermediate levels of sympatry (50%–80% breeding-range overlap). This pattern suggests that closely related species incur costs at intermediate levels of sympatry if they exhibit similar color patterns—costs that could include hybridization, interspecific aggression, competition for signaling space, or ecological interactions that secondarily influence color patterns. The decline in color pattern divergence with further increase in sympatry suggests either the relaxation of divergent selection, increased impediment of gene flow, or an increased role for counteracting selection at higher levels of sympatry. We also found that the differences in color pattern between sympatric and allopatric sister species were greatest at lower latitudes. The global scale and broad taxonomic coverage in our study suggest that the divergence of color patterns between sympatrically breeding closely related species is widespread in birds.