The French site of Arcy-sur-Cure is a key locality in documenting the Middle-Upper Palaeolithic transition in Europe. Reliable attribution of the fragmentary hominid fossils associated with its early Upper Palaeolithic Châtelperronian industry has not been possible. Here we report the first conclusive identification of one of these fossils as Neanderthal on the basis of newly discovered derived features of the bony labyrinth. Dated at about thirty-four thousand years (34 kyr) ago, the fossil is representative of the youngest known Neanderthal populations, and its archaeological context indicates that these hominids used a rich bone industry as well as personal ornaments. The evidence supports the hypothesis of a long term coexistence with technocultural interactions between the first modern humans and the last Neanderthals in Europe. However, the complete absence of the derived Neanderthal traits in labyrinths of modern Upper Palaeolithic specimens from western Europe argues against phylogenetic continuity between the two populations in this region.