Abstract Sympatric speciation is a contentious concept, although theoretical models as well as empirical evidence support its relevance in evolutionary biology. The Midas cichlid species complex (Amphilophus citrinellus, labiatus, zaliosus) from several crater lakes in Nicaragua fits several of the key characteristics of a sympatric speciation model. In particular, in A. citrinellus (i) strong assortative mating on the basis of colour polymorphism and (ii) ecological differentiation based on morphological polymorphisms involving the feeding apparatus and body shape might both be mechanisms of incipient speciation. Seven microsatellite markers and mtDNA control region sequences [836 base pairs (bp)] were used to study the population genetic structure of 519 specimens of Midas cichlid populations from the two Great Lakes Managua and Nicaragua, and three crater lakes in Nicaragua, Central America. The three named species of the species complex occupy different ecological niches, are morphologically distinct and can be distinguished genetically. We uncovered allopatric genetic differentiation of populations of A. citrinellus from different lakes and distant locations within Lake Managua and, more interestingly, incipient genetic differentiation of several sympatric populations based on colouration (in A. citrinellus and A. labiatus) but not on the morphology of the pharyngeal jaws (in A. citrinellus). Sexual selection and assortative mating might be the driven forces of diversification within named species. The Midas cichlid species complex in Nicaragua is an excellent model system for the study of the incipient stages of adaptation, speciation and the formation of species flocks.