Elucidating how ecological and evolutionary mechanisms interact to produce and maintain biodiversity is a fundamental problem in evolutionary ecology. We investigate this issue by focusing on how physiological evolution affects performance and species coexistence along the thermal niche axis in replicated radiations of Anolis lizards, groups best known for resource partitioning based on morphological divergence. We find repeated divergence in thermal physiology within these radiations, and that this divergence significantly affects performance within natural thermal environments. Morphologically similar species that co-occur invariably differ in their thermal physiology, providing evidence that physiological divergence facilitates species co-existence within anole communities. Despite repeated divergence in traits of demonstrable ecological importance, phylogenetic comparative analyses indicate that physiological traits have evolved more slowly than key morphological traits related to the structural niche. Phylogenetic analyses also reveal that physiological divergence is correlated with divergence in broad-scale habitat climatic features commonly used to estimate thermal niche evolution, but that the latter incompletely predicts variation in the former. We provide comprehensive evidence for repeated adaptive evolution of physiological divergence within Anolis adaptive radiations, including the complementary roles of physiological and morphological divergence in promoting community-level diversity. We recommend greater integration of performance-based traits into analyses of climatic niche evolution, as they facilitate a more complete understanding of the phenotypic and ecological consequences of climatic divergence.