The relative importance of food quality vs. enemy-free space remains an unresolved but central issue in the evolutionary ecology of host use by phytophagous insects. In this study, we investigate their relative importance in determining host-plant use by a generalist caterpillar, Estigmene acrea (Lepidoptera: Arctiidae). In nature, E. acrea late-instar caterpillars preferred Senecio longilobus (Asteraceae), which contains pyrrolizidine alkaloids that the caterpillars sequester, over Viguiera dentata (Asteraceae), a natal host, and typically suffered a 28% mortality risk from parasitoids. We hypothesized that the natural, mixed diet of caterpillars provides high-quality food via hosts like Viguiera as well as antiparasitoid defense via sequestered toxins from Senecio. We found that a pure Viguiera diet provides superior growth performance over a pure Senecio or mixed diet in the absence of parasitism. However, when parasitism risk is at least moderate, the mixed diet provides a survival advantage over the pure diets of Viguiera or Senecio. We therefore conclude that the balance between benefits of growth (food quality) and defense (enemy-free space) maintains the use of a mixed diet in nature. Furthermore, the value of enemy-free space supercedes the value of food quality in determining the host-plant preference of late-instar caterpillars.