Previous research has demonstrated the importance of nest predation as a major force affecting the reproductive success of birds. The evolution of different life histories, reproductive strategies, and habitat selection in response to predation has been well- documented across avian taxa. However, no studies have focused on a cavity-nesting species with a low reproductive rate. I investigated how the Flammulated Owl (Psiloscops flammeolus), a small secondary cavity-nesting raptor, has adapted in response to predation by the North American Red Squirrel (Tamiasciurus hudsonicus) on the Manitou Experimental Forest in Central Colorado. I evaluated several mechanisms of predator avoidance that Flammulated Owls may have evolved as part of their nest habitat selection, including selecting locations with lower squirrel density or lower squirrel activity, and selecting nesting locations that limit attacks by squirrels. I estimated squirrel density from detections along line transects, mapped locations of squirrels that were detected, and mapped the location of squirrel middens within and outside owl territories. Habitat variables were quantified at owl nest trees and adjacent forests and compared to available but unused sites. I found that squirrel density per hectare was greater in owl territories (3.1 ± 0.4) than random territories (0.3 ± 0.1; t=6.1, df=2, p<0.05), but I found no correlation between squirrel abundance and midden characteristics. Cavity height was on average higher at owl nests (7.7 ± 0.2m) than available but unused cavities (6.0 ± 0.3m; t=2.7, df=369, p<0.01), and successful nests (8.9 ± 0.4m) were higher than depredated nests (6.6 ± 0.3m; t=4.1, df=69, p<0.001). A similar pattern was found with nest tree height, and a positive correlation was found between the two habitat characteristics (p<0.001, R2=0.26). Although squirrel density was higher in owl territories, it is possible that underlying habitat differences exist across the study area, and that common characteristics are associated with high-quality habitat for both owls and squirrels. Selection for higher nesting cavities by Flammulated Owls may be an adaptive response to perceived predation risk or decreased nesting success in lower cavities, as has been corroborated by other studies of cavity-nesting birds.