Whether neutral or deterministic factors structure biotic communities remains an open question in community ecology. We studied the spatial structure of a desert grassland grasshopper community and tested predictions for species sorting based on niche differentiation (deterministic) and dispersal limitation (neutral). We contrasted the change in species relative abundance and community similarity along an elevation gradient (i.e., environmental gradient) against community change across a relatively homogeneous distance gradient. We found a significant decrease in pairwise community similarity along both elevation and distance gradients, indicating that dispersal limitation plays a role in structuring local grasshopper communities. However, the distance decay of similarity was significantly stronger across the elevational gradient, indicating that niche-based processes are important as well. To further investigate mechanisms underlying niche differentiation, we experimentally quantified the dietary preferences of two common species, Psoloessa texana and Psoloessa delicatula, for the grasses Bouteloua eriopoda and Bouteloua gracilis, which are the dominant plants (~75% of total cover) in our study area. Cover of the preferred host plant explained some of the variation in relative abundances of the two focal species, although much variance in local Psoloessa distribution remained unexplained. Our results, the first to examine these hypotheses in arid ecosystems, indicate that the composition of local communities can be influenced by both probabilistic processes and mechanisms based in the natural histories of organisms.