Extensive collecting of grasshoppers of the genus Phaulacridium in New Zealand has indicated the presence of a new species, P. otagoense Ritchie & Westerman, distributed parapatrically with respect to the common and widespread species, P. marginale (Walker) in the Mackenzie Plains and Central Otago regions of South Island. Phaulacridium otagoense occurs on exposed hillsides with bare patches caused by rabbit grazing while P. margtnale is found in adjoining areas with lusher vegetation and less severe erosion. A key to the two species and a differential diagnosis are provided. Statistically significant differences in morphology and in nuclear DNA content and chiasma frequency confirm the separate species status of the two taxa. The present-day distribution and probable allopatric origin of P. otagoense from P. marginale is discussed in the light of past and present vegetational and climatic factors and their recent disruption by human agencies. The holotype and some paratypes of P. oiagoense are deposited in the Canterbury Museum, Christchurch, New Zealand and further paratypes are deposited in the Australian National Insect Collection, Canberra and the British Museum (Natural History), London