Introgressive hybridization is increasingly recognized as having influenced the gene pools of large genera of plants, yet it is rarely invoked as an explanation for why closely related plant species do not co-occur. Here, we asked how the environment and tendency to interbreed relate to neighborhood co-occurrence patterns for Eucalyptus species in the Grampians National Park, Victoria, Australia. We identified species pairs that have experienced ongoing hybridization and introgression on the basis of the extent of incongruence between chloroplast DNA (JLA+ region) and nuclear ribosomal DNA (internal transcribed spacer region) phylogenies, geographic patterns of gene sharing, and field observation of intermediate morphologies. Co-occurrence, trait data (specific leaf area [SLA], maximum height, and seed mass), and environmental data were measured in plots distributed along environmental gradients. Trait and habitat similarity influenced species co-occurrence the most overall (e.g., co-occurring species had similar SLA). Reproductively compatible species were an exception; they rarely co-occurred despite being functionally similar. The negative effect of reproductive compatibility was stronger than the positive effect of SLA on co-occurrence. Our results emphasize the dominant roles of the environment and the importance of evolution in structuring local assemblages. We argue that the mechanism responsible for preventing closely related species from co-occurring in this system is reproductive interference rather than competitive exclusion. Reproductive interference should be considered more generally as a potential cause of phylogenetic overdispersion.