Local adaptation is an important consideration when predicting arthropod-borne disease risk because it can impact on individual vector fitness and vector population persistence. However, the extent that populations are adapted to local environmental conditions remains unknown. Here, we identified 128 candidate SNPs, clustered within 17 genes, which show a strong genetic signal of adaptation across Panama. Analysis of genome-wide SNPs showed that the local adaptation of Aedes aegypti mosquito populations occurs across relatively fine geographic scales. The composition and frequency of candidate adaptive loci differed between populations in wet tropical environments along the Caribbean coast and the dry tropical conditions typical of the Pacific coast of Panama. Temperature and vegetation were important predictors of adaptive genomic variation in Ae. aegypti with areas of local adaptation occurring within the Caribbean region of Bocas del Toro, the Pacific coastal areas of Herrera and Panama City and the eastern Azuero Peninsula. In addition, we found that the geographic distribution of Ae. aegypti across Panama is rapidly changing as a consequence of the recent invasion by its ecological competitor, Aedes albopictus. Although Ae. albopictus has displaced Ae. aegypti in some areas, species coexist across many areas, including regions where Ae. aegypti are locally adapted. Our results guide future experimental work by suggesting that adaptive variation within Ae. aegypti is affecting the outcome of inter-specific competition with Ae. albopictus and, as a consequence, may fundamentally alter future arborviral disease risk and efforts to control mosquito populations.