The present study describes the selection of breeding habitat by Little Terns (Sternula albifrons) nesting on sandy beaches in southern Portugal and the consequences of nest site selection for breeding performance. A range of physical and biological factors were used to assess the reproductive consequences of the birds' decisions, using three complementary approaches: 1) the characteristics of individual nest sites were compared with those of random points within a colony, 2) a Binomial Generalised Linear Model was used to examine which nest-site characteristics, including proximity to conspecific nests, might explain the success of Little Tern nests, and 3) a field experiment with artificial nests was conducted to test whether avoiding nesting near vegetation improves nesting success. Little Terns generally placed their nests approximately two thirds of the distance between mean high water and the seaward edge of the dunes, with a tendency to avoid vegetated areas but with a preference for a higher coverage of debris. Nesting success was about 35% higher in coarse sand compared to fine sand and was higher for nests closer to their nearest neighbor. Nests placed up to about 20 m distant from the nearest neighbor were about 5% more likely to succeed earlier in the season but nests at distances of 30 m or more to the nearest conspecific had a much higher probability of success later in the season. The combination of interacting abiotic and biotic factors identified as explaining Little Terns' nest site selection and nesting success provide insights relevant to the conservation management of birds breeding on sandy beaches.