Production of transgenic animals has raised concern regarding their potential ecological impact should they escape or be released to the natural environment. This concern has arisen mainly from research on laboratory-reared animals and theoretical modeling exercises. In this study, we used biocontained naturalized stream environments and conventional hatchery environments to show that differences in phenotype between transgenic and wild genotypes depend on rearing conditions and, critically, that such genotype-by-environment interactions may influence subsequent ecological effects in nature. Genetically wild and growth hormone transgenic coho salmon (Oncorhynchus kisutch) were reared from the fry stage under either standard hatchery conditions or under naturalized stream conditions. When reared under standard hatchery conditions, the transgenic fish grew almost three times longer than wild conspecifics and had (under simulated natural conditions) stronger predation effects on prey than wild genotypes (even after compensation for size differences). In contrast, when fish were reared under naturalized stream conditions, transgenic fish were only 20% longer than the wild fish, and the magnitude of difference in relative predation effects was much reduced. These data show that genotype-by-environment interactions can influence the relative phenotype of transgenic and wild-type organisms and that extrapolations of ecological consequences from phenotypes developed in the unnatural laboratory environment may lead to an overestimation or underestimation of ecological risk. Thus, for transgenic organisms that may not be released to nature, the establishment of a range of highly naturalized environments will be critical for acquiring reliable experimental data to be used in risk assessments.