Ecological theory suggests that growth in the density of a population of organizations should give rise, through the mechanism of competition, to functional differentiation and within functions, size differentiation. Such theory also predicts that size differentiation will increase as a consequence of functional differentiation. Tests of these hypotheses based on measurements for 206 SMSAs support these propositions with the exception that no direct effect of organizational density on size differentiation is observed. Secondary hypotheses about the influences of community age, urbanization, and economic function are also advanced and empirically evaluated. This study is conceived as an exploration in the ecology of organizations and confronts issues identified as important by other recent writers on these topics.