Limited spatial separation within small islands suggests that observed population divergence may occur due to habitat differences without interruption to gene flow but strong evidence of this is scarce. The wall lizard Teira dugesii lives in starkly contrasting shingle beach and inland habitats on the island of Madeira. We used a matched pairs sampling design to examine morphological and genomic divergence between four beach and adjacent (<1 km) inland areas. Beach populations are significantly darker than corresponding inland populations. Geometric morphometric analyses reveal divergence in head morphology: beach lizards have generally wider snouts. Genotyping-by-sequencing allows the rejection of the hypothesis that beach populations form a distinct lineage. Bayesian analyses provide strong support for models that incorporate gene flow, relative to those that do not, replicated at all pairs of matched sites. Madeiran lizards show morphological divergence between habitats in the face of gene flow, revealing how divergence may originate within small islands.