Highlanders and lowlanders of Papua New Guinea (PNG) have faced distinct environmental conditions. These environmental differences lead to specific stress on PNG highlanders and lowlanders, such as hypoxia and environment-specific pathogen exposure, respectively. We hypothesise that these constraints induced specific selective pressures that shaped the genomes of both populations. In this study, we explored signatures of selection in newly sequenced whole genomes of 54 PNG highlanders and 74 PNG lowlanders. Based on multiple methods to detect selection, we investigated the 21 and 23 genomic top candidate regions for positive selection in PNG highlanders and PNG lowlanders, respectively. To identify the most likely candidate SNP driving selection in each of these regions, we computationally reconstructed allele frequency trajectories of variants in each of these regions and chose the SNP with the highest likelihood of being under selection with CLUES. We show that regions with signatures of positive selection in PNG highlanders genomes encompass genes associated with the hypoxia-inducible factors pathway, brain development, blood composition, and immunity, while selected genomic regions in PNG lowlanders contain genes related to immunity and blood composition. We found that several candidate driver SNPs are associated with haematological phenotypes in the UK biobank. Moreover, using phenotypes measured from the sequenced Papuans, we found that two candidate SNPs are significantly associated with altered heart rates in PNG highlanders and lowlanders. Furthermore, we found that 16 of the 44 selection candidate regions harboured archaic introgression. In four of these regions, the selection signal might be driven by the introgressed archaic haplotypes, suggesting a significant role of archaic admixture in local adaptation in PNG populations.