Unpalatable plants can protect palatable neighbor plants from grazing pressure, but morphological evolution of a palatable species might change its interactions with unpalatable plants. We predicted that when a palatable species has locally adapted to grazing by expressing a dwarf phenotype that reduces grazer accessibility, the dwarf plants experience relatively more competitive effects than facilitative effects from large, well-defended, unpalatable species. We used a transplant experiment, in which both dwarf and large ecotypes of a palatable annual species, Persicaria longiseta, were transplanted outside and inside the canopy of an unpalatable nettle, Urtica thunbergiana, in a long-term deer grazing habitat of Nara Park, Japan. The dwarf ecotype of Persicaria has adapted to the grazing environments of the park by exhibiting inherently short shoots and small leaves, whereas the large ecotype is found in habitats with no grazing history. A previous common-garden study suggested that the phenotypic differences were genetically based and that phenotypic plasticity contributed little to the morphological difference. The large-phenotype of Persicaria experienced significantly increased morphological size, survival, and reproductive output under the Urtica canopy compared to outside the canopy, whereas these traits of the dwarf phenotype were reduced under the Urtica canopy compared to outside. These results indicate that the net effects of Urtica on Persicaria were positive for the large ecotype and negative for the dwarf ecotype. Thus, the morphological adaptation of a palatable species to avoid grazing altered its interactions with a large, well-defended neighbor.