An assessment of variation in the complex of species related to Polystachya foliosa has revealed a novel circumscription of this species. Our evidence indicates that the name P. foliosa is only correctly applied to plants from the Amazon basin, the Guiana shield, and the West Indies. The name Polystachya caracasana is here used for many other populations of the species formerly referred to P. foliosa, thus making the latter a more narrowly circumscribed taxon. The two species are easily distinguished by flower size, labellum details, and vegetative traits. A key to distinguish these two species is provided. Full descriptions, discussions of synonymy, relevant iconography, and specimen citations for both taxa are also presented. Lectotypes are designated for P. cingulata Schltr., P. guatemalensis Schltr., P. minor Fawcett, P. panamensis Schltr., and P. weigeltii Rchb.f.; a neotype is designated for P. stenophylla Schltr., and epitypes are proposed for P. foliosa and P. panamensis.