Microbial communities are accompanied by a diverse array of viruses. Through infections of abundant microbes, these viruses have the potential to mediate competition within the community, effectively weakening competitive interactions and promoting coexistence. This is of particular relevance for host-associated microbial communities, because the diversity of the microbiota has been linked to host health and functioning. Here, we study the interaction between two key members of the microbiota of the freshwater metazoanHydra vulgaris. The two commensal bacteriaCurvibactersp. andDuganellasp. protect their host from fungal infections, but only if both of them are present. Coexistence of the two bacteria is thus beneficial forHydra. Intriguingly,Duganellasp. appears to be the superior competitorin vitrodue to its higher growth rate when both bacteria are grown separately, but in co-culture the outcome of competition depends on the relative initial abundances of the two species. The presence of an inducible prophage in theCurvibactersp. genome, which is able to lytically infectDuganellasp., led us to hypothesize that the phage modulates the interaction between these two key members of theHydramicrobiota. Using a mathematical model, we show that the interplay of the lysogenic life cycle of theCurvibacterphage and the lytic life cycle onDuganellasp. can explain the observed complex competitive interaction between the two bacteria. Our results highlight the importance of taking lysogeny into account for understanding microbe–virus interactions and show the complex role phages can play in promoting coexistence of their bacterial hosts.