Light coupling in waveguides has been extensively investigated in a variety of contexts, from photonic integrated circuits to biosensing and near-eye displays for augmented reality. Here, narrowband diffraction is reported using a Fano interference effect in hybrid nanostructures. The excitation of hybrid plasmonic and bulk waveguides allows for a selectivity of 10 nm bandwidth in the first order and strong reduction of the entire zeroth order. A Fano formalism is used to predict the maximal diffraction efficiency at critical coupling, when external mode coupling balances intrinsic losses. It is found that the first order and zeroth order are related by a Fano-like spectral profile with similar spectral widths, resonance wavelengths, and modulation depths and differ only in the asymmetry parameter. The diffraction efficiency, angle, and wavelength can be solely tuned by the thin film thickness. A semianalytical dispersion model of the hybrid system is introduced and validated experimentally. Applications are foreseen in many optical devices that require color-selective coupling or dispersive properties such as optical document security or near-eye displays. The dispersion behavior under a divergent light source can also be utilized to design inexpensive, compact, and robust spectrometers or biosensors.