Habitat segregation among competing species is widespread yet very little is know how this is achieved in practice. In a case study, we examined short-term effects of conspecific and congeneric density on habitat selection in two competing marine isopod species, Idotea emarginata and Idotea baltica. Under semi-natural conditions in large outdoor cylindrical tanks (4 m high; volume 5.5 m3), animal groups of different size and composition had the choice between a set of relevant habitat samples (surface-floating seaweed, the water column, seaweed on the bottom). Habitat selection in both I. baltica and I. emarginata proved to be largely independent of conspecific density (level of intraspecific competition). In single-species treatments, both species showed a similar and stable pattern of distribution, with a clear preference for seaweed on the bottom. In mixed-species treatments (MST), however, the species were largely separated by habitat. While the distribution of I. emarginata was completely unaffected by the mere presence of interspecific competitors, habitat selection of I. baltica changed notably when I. emarginata was present. The habitat use patterns observed in MST conformed to those realized in geographical areas where the two species overlap in distribution: I. emarginata is dominant among decaying seaweed on the sea floor, and I. baltica is the dominant species among surface-floating seaweed. Our findings suggest that habitat segregation between the two species is essentially interactive, resulting from rapid decision-making of I. baltica with respect to habitat selection. The underlying mechanism is discussed. I. emarginata is highly superior to I. baltica in interference competition and rapidly eliminates the latter from one-habitat systems which do not allow I. baltica to escape from this interaction. In more natural, heterogeneous environments, however, I. baltica seems to be able to coexist with the superior competitor due to its broader habitat niche, flexibility in habitat selection, and a behavioural disposition to avoid normally preferred habitats when these are occupied by I. emarginata.