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MacArthur and Wilson's theory of island biogeography predicts that island species richness should increase with island area. This prediction generally holds among large islands, but among small islands species richness often varies independently of island area, producing the so-called 'small-island effect' and an overall biphasic species-area relationship (SAR). Here, we develop a unified theory that explains the biphasic island SAR. Our theory's key postulate is that as island area increases, the total number of immigrants increases faster than niche diversity. A parsimonious mechanistic model approximating these processes reproduces a biphasic SAR and provides excellent fits to 100 archipelago datasets. In the light of our theory, the biphasic island SAR can be interpreted as arising from a transition from a niche-structured regime on small islands to a colonization-extinction balance regime on large islands. The first regime is characteristic of classic deterministic niche theories; the second regime is characteristic of stochastic theories including the theory of island biogeography and neutral theory. The data furthermore confirm our theory's key prediction that the transition between the two SAR regimes should occur at smaller areas, where immigration is stronger (i.e. for taxa that are better dispersers and for archipelagos that are less isolated)., (© 2016 The Author(s).)