Ecological communities characteristically contain a wide diversity of species with important functional, economic and aesthetic value. Ecologists have long questioned how this diversity is maintained. Classic theory shows that stable coexistence requires competitors to differ in their niches; this has motivated numerous investigations of ecological differences presumed to maintain diversity. That niche differences are key to coexistence, however, has recently been challenged by the neutral theory of biodiversity, which explains coexistence with the equivalence of competitors. The ensuing controversy has motivated calls for a better understanding of the collective importance of niche differences for the diversity observed in ecological communities. Here we integrate theory and experimentation to show that niche differences collectively stabilize the dynamics of experimental communities of serpentine annual plants. We used field-parameterized population models to develop a null expectation for community dynamics without the stabilizing effects of niche differences. The population growth rates predicted by this null model varied by several orders of magnitude between species, which is sufficient for rapid competitive exclusion. Moreover, after two generations of community change in the field, Shannon diversity was over 50 per cent greater in communities stabilized by niche differences relative to those exhibiting dynamics predicted by the null model. Finally, in an experiment manipulating species' relative abundances, population growth rates increased when species became rare--the demographic signature of niche differences. Our work thus provides strong evidence that species differences have a critical role in stabilizing species diversity.