Genetic differentiation in traits is assumed to frequently occur in response to divergent natural selection. For example, developmental traits might respond to differences in climate. However, little is known about when and at which spatial scales environmental differences lead to genetic differentiation, and to what extent there is genetic differentiation also in trait plasticity. Using a crossing design and a greenhouse heating experiment, we investigated genetic differentiation in thermal sensitivity of flowering time in a perennial herb along small-scale gradients in geothermal soil heating in Iceland. We found additive genetic variation in both flowering time and thermal plasticity of flowering time. Genetic differentiation in the median flowering date of individuals showed a counter-gradient pattern; flowering being earlier at higher greenhouse temperatures, while at a given temperature individuals originating from warmer soils flowered later than individuals from colder soils. We found no corresponding pattern for plasticity, suggesting that genetic differentiation in phenology in response to soil heating has occurred through changes in trait means rather than in plasticity. Findings such as these identifying genetic trait differentiation along an environmental gradient are key to understand how environmental variation can drive the process of local adaptation, and to predict responses to future environmental changes.