Successful conservation of migratory birds demands we understand how habitat factors on the breeding grounds influences breeding success. Multiple factors are known to directly influence breeding success in territorial songbirds. For example, greater food availability and fewer predators can have direct effects on breeding success. However, many of these same habitat factors can also result in higher conspecific density that may ultimately reduce breeding success through density dependence. In this case, there is a negative indirect effect of habitat on breeding success through its effects on conspecific density and territory size. Therefore, a key uncertainty facing land managers is whether important habitat attributes directly influence breeding success or indirectly influence breeding success through territory size. We used radio-telemetry, point-counts, vegetation sampling, predator observations, and insect sampling over two years to provide data on habitat selection of a steeply declining songbird species, the Canada Warbler (Cardellina canadensis). These data were then applied in a hierarchical path modeling framework and an AIC model selection approach to determine the habitat attributes that best predict breeding success. Canada Warblers had smaller territories in areas with high shrub cover, in the presence of red squirrels (Tamiasciurus hudsonicus), at shoreline sites relative to forest-interior sites and as conspecific density increased. Breeding success was lower for birds with smaller territories, which suggests competition for limited food resources, but there was no direct evidence that food availability influenced territory size or breeding success. The negative relationship between shrub cover and territory size in our study may arise because these specific habitat conditions are spatially heterogeneous, whereby individuals pack into patches of preferred breeding habitat scattered throughout the landscape, resulting in reduced territory size and an associated reduction in resource availability per territory. Our results therefore highlight the importance of considering direct and indirect effects for Canada warblers; efforts to increase the amount of breeding habitat may ultimately result in lower breeding success if habitat availability is limited and negative density dependent effects occur.