Empirical studies have documented both positive and negative density-dependent dispersal, yet most theoretical models predict positive density dependence as a mechanism to avoid competition. Several hypotheses have been proposed to explain the occurrence of negative density-dependent dispersal, but few of these have been formally modeled. Here, we developed an individual-based model of the evolution of density-dependent dispersal. This model is novel in that it considers the effects of density on dispersal directly, and indirectly through effects on individual condition. Body condition is determined mechanistically, by having juveniles compete for resources in their natal patch. We found that the evolved dispersal strategy was a steep, increasing function of both density and condition. Interestingly, although populations evolved a positive density-dependent dispersal strategy, the simulated metapopulations exhibited negative density-dependent dispersal. This occurred because of the negative relationship between density and body condition: high density sites produced low-condition individuals that lacked the resources required for dispersal. Our model, therefore, generates the novel hypothesis that observed negative density-dependent dispersal can occur when high density limits the ability of organisms to disperse. We suggest that future studies consider how phenotype is linked to the environment when investigating the evolution of dispersal.