Many gregarious insects aggregate in naturally occurring refuges on their host plants. However, when refuges are filled, they may be forced to aggregate on exposed areas of the plant. This study examines the effects of refuge saturation on group size and defence against parasitism in larvae of Ammalo helops Cramer (Lepidoptera: Arctiidae) that form day-resting groups on the trunks of weeping laurel, Ficus benjamina L., in El Salvador. Population densities, group sizes and parasitism were recorded on eight trees for each of four generations in 1995 and 1996. When population densities were low, all larvae were located in small groups in naturally occurring structural refuges (rotted out holes, spaces between crossing branches and under aerial roots) on the host plant. In contrast, when population densities were high and structural refuges were full, many larvae formed significantly larger groups (density refuges) on the open trunk. Between 20 and 24% of late-instar larvae were parasitized and this was inversely dependent on the size of within tree populations, in spite of populations being fragmented among structural refuges. Similarly, in a study carried out at a different location on young trees without structural refuges, parasitism of larvae was inversely related to group size. Although parasitism rates decreased with increasing group size, most larvae preferentially selected the small naturally occurring refuges, where groups were restricted to low densities. If this behaviour is an adaptive trait, I speculate that parasitism (or some other unmeasured mortality factor) is lower in naturally occurring refuges than in large open groups.