Many plants display a characteristic suite of developmental “shade avoidance” responses, such as stem elongation and accelerated reproduction, to the low ratio of red to far-red wavelengths (R:FR) reflected or transmitted from green vegetation. This R:FR cue of crowding and vegetation shade is perceived by the phytochrome family of photoreceptors. Phytochrome-mediated responses provide an ideal system for investigating the adaptive evolution of phenotypic plasticity in natural environments. The molecular and developmental mechanisms underlying shade avoidance responses are well studied, and testable ecological hypotheses exist for their adaptive significance. Experimental manipulation of phenotypes demonstrates that shade avoidance responses may be adaptive, resulting in phenotypes with high relative fitness in the environments that induce those phenotypes. The adaptive value of shade avoidance depends upon the competitive environment, resource availability, and the reliability of the R:FR cue for predicting the selective environment experienced by an induced phenotype. Comparative studies and a reciprocal transplant experiment with Impatiens capensis provide evidence of adaptive divergence in shade avoidance responses between woodland and clearing habitats, which may result from population differences in the frequency of selection on shade avoidance traits, as well as differences in the reliability of the R:FR cue. Recent rapid progress in elucidating phytochrome signaling pathways in the genetic model Arabidopsis thaliana and other species now provides the opportunity for studying how selection on shade avoidance traits in natural environments acts upon the molecular mechanisms underlying natural phenotypic variation.