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Several recent studies document that specialist insect phytophages may be less subject to predation than generalists and suggest that hostplant-derived chemical defences may be an important explanation for the predominance of specialized feeding among insect herbivores. The evolution of such chemical defences depends upon both their advantages versus natural enemies and their physiological costs, but data on these costs, particularly genetic data, are few. Here I report the results of an ecological genetic investigation of food use efficiency and allelochemical sequestration in Junonia coenia Hu¨bner (Nymphalidae). I used standard gravimetric techniques to estimate the efficiency of dry matter incorporation and iridoid glycoside sequestration in the larvae of 37 full-sib families fed artificial diets containing trace, low (2%) and high (10%) concentrations of iridoid glycosides. I found a significant reduction in the efficiency of dry matter incorporation on a high iridoid diet that is entirely attributable to reduced digestibility rather than post-digestive toxic effects. Larvae fed high-iridoid diets sequestered them less efficiently, but this difference was due largely to post-digestive effects. Analyses of genetic variation and architecture of dry matter and iridoid budgets reveal substantial genetic variation in both suites of traits, but only chemical defence showed a significant genotype×environment interaction which would be conducive to the evolution of specialization. Neither group of traits showed across-diet trade-offs in the form of negative correlations of family means among diets. Family means correlations of sequestration indices with dry matter indices within diets reveals that chemical defence comes at a cost to growth, but only in the high diet. I also found evidence of specialized physiological machinery for iridoid glycoside processing. These data indicate that even adapted specialists are negatively affected by plant toxins, but in this species, dietary specialization is more likely to result from selection from natural enemies than from hostplant toxins.