Caterpillars of the butterfly Maculinea rebeli develop as parasites inside ant colonies. In intensively studied French populations, about 25% of caterpillars mature within 1 year (fast-developing larvae [FDL]) and the others after 2 years (slow-developing larvae [SDL]); all available evidence indicates that this ratio is under the control of egg-laying females. We present an analytical model to predict the evolutionarily stable fraction of FDL (pESS). The model accounts for added winter mortality of SDL, general and kin competition among caterpillars, a competitive advantage of SDL over newly entering FDL (priority effect), and the avoidance of renewed infection of ant nests by butterflies in the coming season (segregation). We come to the following conclusions: (1) all factors listed above can promote the evolution of delayed development; (2) kin competition and segregation stabilize pESS near 0.5; and (3) a priority effect is the only mechanism potentially selecting for pESS < 0.5. However, given the empirical data, pESS is predicted to fall closer to 0.5 than to the 0.25 that has been observed. In this particular system, bet hedging cannot explain why more than 50% of larvae postpone growth. Presumably, other fitness benefits for SDL, for example, higher fertility or longevity, also contribute to the evolution of delayed development. The model presented here may be of general applicability for systems where maturing individuals compete in small subgroups.