It is widely believed that, in contrast to its electron-doped counterparts, the hole-doped compound Ba1-xKxFe2As2 exhibits a mesoscopic phase separation of magnetism and superconductivity in the underdoped region of the phase diagram. Here, we report a combined high-resolution x-ray powder diffraction and volume-sensitive muon spin rotation study of Ba1-xKxFe2As2 showing that this paradigm does not hold true in the underdoped region of the phase diagram (0 <= x <= 0.25). Instead we find a microscopic coexistence of the two forms of order. A competition of magnetism and superconductivity is evident from a significant reduction of the magnetic moment and a concomitant decrease of the magnetoelastically coupled orthorhombic lattice distortion below the superconducting phase transition.