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As an outcome of natural selection, animals are probably adapted to select territories economically by maximizing benefits and minimizing costs of territory ownership. Theory and empirical precedent indicate that a primary benefit of many territories is exclusive access to food resources, and primary costs of defending and using space are associated with competition, travel and mortality risk. A recently developed mechanistic model for economical territory selection provided numerous empirically testable predictions. We tested these predictions using location data from grey wolves ( Canis lupus ) in Montana, USA. As predicted, territories were smaller in areas with greater densities of prey, competitors and low-use roads, and for groups of greater size. Territory size increased before decreasing curvilinearly with greater terrain ruggedness and harvest mortalities. Our study provides evidence for the economical selection of territories as a causal mechanism underlying ecological patterns observed in a cooperative carnivore. Results demonstrate how a wide range of environmental and social conditions will influence economical behaviour and resulting space use. We expect similar responses would be observed in numerous territorial species. A mechanistic approach enables understanding how and why animals select particular territories. This knowledge can be used to enhance conservation efforts and more successfully predict effects of conservation actions.