Bacterial symbionts can affect several biotic interactions of their hosts, including their competition with other species. Nematodes in the genus Steinernema utilize Xenorhabdus bacterial symbionts for insect host killing and nutritional bioconversion. Here, we establish that the Xenorhabdus bovienii bacterial symbiont (Xb-Sa-78) of Steinernema affine nematodes can impact competition between S. affine and S. feltiae by a novel mechanism, directly attacking its nematode competitor. Through co-injection and natural infection assays we demonstrate the causal role of Xb-Sa-78 in the superiority of S. affine over S. feltiae nematodes during competition. Survival assays revealed that Xb-Sa-78 bacteria kill reproductive life stages of S. feltiae. Microscopy and timed infection assays indicate that Xb-Sa-78 bacteria colonize S. feltiae nematode intestines, which alters morphology of the intestine. These data suggest that Xb-Sa-78 may be an intestinal pathogen of the non-native S. feltiae nematode, although it is a nonharmful colonizer of the native nematode host, S. affine. Screening additional X. bovienii isolates revealed that intestinal infection and killing of S. feltiae is conserved among isolates from nematodes closely related to S. affine, although the underlying killing mechanisms may vary. Together, these data demonstrate that bacterial symbionts can modulate competition between their hosts, and reinforce specificity in mutualistic interactions.