Defense of a territory is a primary factor determining the fitness of territorial individuals. Thus, territorial animals use a variety of means to lower the cost of territorial defense. Although landmarks are known to lower the defense costs of territories, little is known about how they could affect fundamental properties of territories, which could ultimately affect the demography, population regulation, individual behavior, and spatial ecology of a territorial species. This field study examined the effects of natural landmarks on territory size, shape, and defensive costs in Amatitlania siquia, a little‐studied member of the convict cichlid group native to Costa Rica and Nicaragua. We investigated the territorial behavior of 103 breeding pairs in a caldera lake in Nicaragua. During 10‐min focal observations, we recorded the locations at which residents chased intruders and then used these locations to outline the territory boundaries. Landmarks affected both size and shape of A. siquia territories. Territory size decreased as the percentage of the boundary at landmarks increased. Territories with <20% of their boundaries at landmarks were approximately circular in shape, while territories with 20–60% of their boundaries at landmarks were on average more elongated. These variations in territory size and shape significantly affected defense costs, with higher numbers of chases per square meter in small and elongated territories. These effects of landmarks on territory size and shape and defense costs are useful to understand the widely seen size and shape variations in naturally occurring territories.