Currently, the importance of niches in maintaining diversity is hotly debated. In neutral models niches are absent, habitat is homogeneous and dispersal is limited, whereas in other models niches arise from species’ traits such as their competitive or colonization ability, or from species’ responses to environmental heterogeneity. Neutral models have led to a re-examination of the role of niches in maintaining biodiversity, but studies have yet to experimentally test neutral models against spatially structured models with niches. Here we show that environmental heterogeneity increases diversity, through niches, and identify the coexistence mechanism, mass effects. Further, we show that species diversity was not increased by limiting dispersal in homogeneous habitats, ruling out neutral dynamics and competition-colonization trade offs in maintaining diversity. The idea that environmental heterogeneity can allow many species to coexist is central to ecology and well established theoretically, yet we demonstrate experimentally here for the first time that increasing spatial heterogeneity in the environment increases the number of coexisting species. Human activities are making the world more homogeneous; our results show how reducing heterogeneity leads to biodiversity loss.