Natural host-parasite interactions exhibit considerable variation in host quality, with profound consequences for disease ecology and evolution. For instance, treatments (such as vaccination) may select for more transmissible or virulent strains. Previous theory has addressed the ecological and evolutionary impact of host heterogeneity under the assumption that hosts and parasites disperse globally. Here, we investigate the joint effects of host heterogeneity and local dispersal on the evolution of parasite life-history traits. We first formalise a general theoretical framework combining variation in host quality and spatial structure. We then apply this model to the specific problem of parasite evolution following vaccination. We show that, depending on the type of vaccine, spatial structure may select for higher or lower virulence compared to the predictions of non-spatial theory. We discuss the implications of our results for disease management, and their broader fundamental relevance for other causes of host heterogeneity in nature.