Nest-site selection and nest success for Red-breasted Mergansers (Mergus serrator) breeding on a barrier island complex (Tern Islands) with >10,000 Common Terns (Sterna hirundo) in eastern New Brunswick, Canada, were studied in 2005 and 2006. Concealment was the most important feature for nest placement as 153 of 156 nests were in dense stands of Marram Grass (Ammophila breviligulata), and overhead concealment, vegetation density and vegetation height were all greater at nests than at random locations. Apparent success for all nests was 57% and was similar between years. Few nests were depredated (N = 3), but abandonment was responsible for 95% of nest losses and was most common early in the season. Nest success was <45% for nests initiated before 25 May but >75% for nests initiated after 10 June. Nest abandonment was influenced by intraspecific nest parasitism and investigator activity. Red-breasted Mergansers selected nest sites adaptively on Tern Islands because: 1) nests were more concealed than random sites; 2) avian predation at nests in the Common Tern colony was lower than at nests on nearby islands without terns; 3) nests were not exposed to mammalian predators; and 4) nest success and nest densities were high.