Carotenoid colour displays are widely assumed to be honest indicators of individual health or quality, primarily in mate attraction. Here we show that sexually dimorphic carotenoid ornamentation functions as an agonistic signal in male red-collared widowbirds, Euplectes ardens. Mounted male models differing (within natural limits) in the intensity of carotenoid signalling were presented to wild resident males as simulated intruders, perched or made to 'fly' across the territory with the elongated tail folded or keeled. Perched mounts were generally ignored, and stronger aggression towards 'flying' models with a keeled tail (i.e. as in courtship display) than a folded tail suggests the tail display is used to assess the intention of intruding males. Territory owners were less aggressive towards models with intense collar display, suggesting that carotenoid coloration functions as a badge of status in this species. The level of aggressive response was also related to the resident's own badge in that males with larger, redder collars responded more aggressively to the models. In addition, males with a larger collar signal defended larger territories and spent less time in territory defence. Apart from the collar size and 'redness', no other morphological variable predicted the aggressive response of territorial males. Given the previously demonstrated insignificance of the collar in female mate choice, we suggest that the nuptial carotenoid coloration is an honest signal of dominance or fighting ability, sexually selected through male contest competition over territories.