Background: One of the most common questions addressed by ecologists over the past decade has been-how does species richness impact the production of community biomass? Recent summaries of experiments have shown that species richness tends to enhance the production of biomass across a wide range of trophic groups and ecosystems; however, the biomass of diverse polycultures only rarely exceeds that of the single most productive species in a community (a phenomenon called 'transgressive overyielding'). Some have hypothesized that the lack of transgressive overyielding is because experiments have generally been performed in overly-simplified, homogeneous environments where species have little opportunity to express the niche differences that lead to 'complementary' use of resources that can enhance biomass production. We tested this hypothesis in a laboratory experiment where we manipulated the richness of freshwater algae in homogeneous and heterogeneous nutrient environments. Methodology/Principal Findings: Experimental units were comprised of patches containing either homogeneous nutrient ratios (16:1 nitrogen to phosphorus (N:P) in all patches) or heterogeneous nutrient ratios (ranging from 4:1 to 64:1 N:P across patches). After allowing 6-10 generations of algal growth, we found that algal species richness had similar impacts on biomass production in both homo- and heterogeneous environments. Although four of the five algal species showed a strong response to nutrient heterogeneity, a single species dominated algal communities in both types of environments. As a result, a 'selection effect'-where diversity maximizes the chance that a competitively superior species will be included in, and dominate the biomass of a community-was the primary mechanism by which richness influenced biomass in both homo- and heterogeneous environments. Conclusions/Significance: Our study suggests that spatial heterogeneity, by itself, is not sufficient to generate strong effects of biodiversity on productivity. Rather, heterogeneity must be coupled with variation in the relative fitness of species across patches in order for spatial niche differentiation to generate complementary resource use.