The concept of limiting similarity predicts that closely related taxa are less likely to co-occur than expected by chance. The degree to which the phylogenetic relatedness in plant communities is in accord with limiting similarity has been little tested at the scale where the consequences of adaptive differentiation during speciation should be most evident: the scale of neighboring, congeneric plants within a community. To quantify species co-occurrence patterns in relation to environment, we sampled sedge species, their rooting level relative to the water table, and the water pH in 2,124 0.25 m² quadrats distributed across 29 subarctic fens in the central Labrador Peninsula. We estimated phylogenetic relationships using four DNA regions (ETS, ITS, matK, trnL-trnF) for all species of Carex (42), Eriophorum (6), and Trichophorum (2) in the region, of which 21, four, and two, respectively, occurred in the sampled fens. We demonstrate that closely related species of Carex are less likely to co-occur than expected by chance using 1) a probabilistic method to test the significance of pairwise co-occurrence patterns of species, and 2) linear mixed modeling to relate these patterns to phylogenetic relationships and ecological tolerances along gradients of substrate pH and rooting level in relation to the water table. The results also indicate that suites of species with significant mutual pairwise co-occurrence belong to distant lineages within the Cariceae-Dulichieae-Scirpeae clade of Cyperaceae and have stabilizing niche differences. We suggest that niche differentiation during the evolution and diversification of a clade of wetland Carex species over the past few million years, especially during the dynamic glacial cycles of the Pleistocene, has resulted in diverse sedge communities that share space and resources in harsh northern peatland habitats.