Sympatric speciation, the formation of species in the absence of geographical barriers, remains one of the most contentious concepts in evolutionary biology. Although speciation under sympatric conditions seems theoretically possible, empirical studies are scarce and only a few credible examples of sympatric speciation exist. Here we present a convincing case of sympatric speciation in the Midas cichlid species complex (Amphilophus sp.) in a young and small volcanic crater lake in Nicaragua. Our study includes phylogeographic, population-genetic (based on mitochondrial DNA, microsatellites and amplified fragment length polymorphisms), morphometric and ecological analyses. We find, first, that crater Lake Apoyo was seeded only once by the ancestral high-bodied benthic species Amphilophus citrinellus, the most common cichlid species in the area; second, that a new elongated limnetic species (Amphilophus zaliosus) evolved in Lake Apoyo from the ancestral species (A. citrinellus) within less than approximately 10,000 yr; third, that the two species in Lake Apoyo are reproductively isolated; and fourth, that the two species are eco-morphologically distinct.