Habitat segregation between two closely related Pohlia species, P. annotina and P. drummondii, was documented on the basis of field observations at higher elevations in Yakushima Island, supplemented with molecular analysis to confirm the species identities. Both species, belonging to the P. annotina complex, grow on bare soils and have similar gametophytic features as well as heavy dependence on asexual reproduction by propagules produced in leaf axils. The species show a clear difference in habitat preference: P. drummondii is strictly confined to invariably wet or moist soils such as at the edge of bog swamps or streamlets in mountain trails excavated by heavy rains, while P. annotina is mostly found in less humid habitats even if both species sometimes grow side-by-side. A phylogenetic tree using rbcL sequences confirmed that P. annotina, P. drummondii and P. flexuosa, another member of the complex, represent distinct species. In addition to the usual vermicular propagules, Japanese plants of P. annotina and P. flexuosa were shown for the first time to have several other kinds of propagules, as also found in European and American plants. Morphological changes during propagule development in Japanese P. drummondii are also reported.