Few studies have investigated the use of termitaria by nesting parrots, or how this may be affected by habitat transformation. We determined selection of termitaria by nesting Orange‐fronted Parakeets Aratinga canicularis, and evaluated the effect of habitat transformation on the availability of termitaria nest‐sites for Parakeets in the tropical dry forest of Western Mexico. Availability of termitaria was quantified in 24 survey plots in a factorial design of six 1‐ha plots in each of conserved and modified, deciduous and semi‐deciduous forest. Characteristics of termitaria were determined in survey plots, as well as 21 nest‐termitaria used by Parakeets, and their nearest adjacent termitarium. There was an overall density of 1.6 termitaria/ha suitable for nesting by Parakeets, which did not differ between habitats, although only 8% of apparently suitable termitaria were occupied by nesting Parakeets. However, termitaria in conserved semi‐deciduous forest were significantly higher above the ground, and termitaria in conserved deciduous forest were significantly smaller in volume. In the modified landscape, termitaria were significantly lower and their volume significantly larger than in conserved landscapes. Termitaria used by nesting parrots were at a significantly greater height above the ground than the nearest adjacent termitaria. Termitarium volume did not reliably predict the likelihood of nest‐site selection, although Parakeets only used termitaria between 15 and 150 l. Parakeets nesting in modified habitats used termitaria at a significantly lower height than Parakeets nesting in conserved habitat. It is unclear whether this represents a decline in nest‐site quality in modified habitats, which could affect reproductive success of Parakeet populations in fragmented landscapes.