Despite a growing appreciation of their vast diversity in nature, mechanisms of speciation are poorly understood in Bacteria and Archaea. Here we use high-throughput genome sequencing to identify ongoing speciation in the thermoacidophilic Archaeon Sulfolobus islandicus. Patterns of homologous gene flow among genomes of 12 strains from a single hot spring in Kamchatka, Russia, demonstrate higher levels of gene flow within than between two persistent, coexisting groups, demonstrating that these microorganisms fit the biological species concept. Furthermore, rates of gene flow between two species are decreasing over time in a manner consistent with incipient speciation. Unlike other microorganisms investigated, we do not observe a relationship between genetic divergence and frequency of recombination along a chromosome, or other physical mechanisms that would reduce gene flow between lineages. Each species has its own genetic island encoding unique physiological functions and a unique growth phenotype that may be indicative of ecological specialization. Genetic differentiation between these coexisting groups occurs in large genomic "continents," indicating the topology of genomic divergence during speciation is not uniform and is not associated with a single locus under strong diversifying selection. These data support a model where species do not require physical barriers to gene flow but are maintained by ecological differentiation.