The effect of evolutionary changes in traits and phenotypic/genetic diversity on ecological dynamics has received much theoretical attention; however, the mechanisms and ecological consequences are usually unknown. Female-limited colour polymorphism in damselflies is a counter-adaptation to male mating harassment, and thus, is expected to alter population dynamics through relaxing sexual conflict. Here we show the side effect of the evolution of female morph diversity on population performance (for example, population productivity and sustainability) in damselflies. Our theoretical model incorporating key features of the sexual interaction predicts that the evolution of increased phenotypic diversity will reduce overall fitness costs to females from sexual conflict, which in turn will increase productivity, density and stability of a population. Field data and mesocosm experiments support these model predictions. Our study suggests that increased phenotypic diversity can enhance population performance that can potentially reduce extinction rates and thereby influence macroevolutionary processes.