Species niches may impact population and community stability by influencing average population sizes and species richness, however, niche-based approaches are rarely applied when studying stability in natural communities. Here we utilise a niche-based approach to link niche characteristics to community stability in 140 European butterfly communities. We represent niches as hyper-volumes and generate metrics for niche overlap, mismatch, and volume. Using structural equation modelling we then test five hypotheses linking niche and community characteristics to mechanisms influencing community stability. We find that the position of a site relative to the niches of the species pool predicts species richness, and that sites with species near the centre of their niche have higher mean abundance. We then show that niche position and size influence population stability, and species richness increases asynchrony which subsequently influences community stability. Our approach demonstrates that niches metrics are useful tools for understanding the dynamics of natural communities.