Mycorrhizal fungi are essential to the establishment of the vast majority of plant species but are often conceptualized with contradictory roles in plant community assembly. On one hand, host-specific mycorrhizal fungi may allow a plant to be competitively dominant by enhancing growth. On the other, host-specific mycorrhizal fungi with different functional capabilities may increase nutrient niche partitioning, allowing plant species to coexist. To resolve the balance of these two contradictory forces, we used a controlled greenhouse study to manipulate the presence of two main types of mycorrhizal fungi, ectomycorrhizal fungi (EMF) and arbuscular mycorrhizal fungi (AMF) and used a range of conspecific and heterospecific competitor densities to investigate the role of mycorrhizal fungi in plant competition and coexistence. We find that the presence of AMF equalizes fitness differences between plants and stabilizes competition to create conditions for host species coexistence. Our results show how belowground mutualisms can shift outcomes of plant competition, and that a holistic view of plant communities which incorporates their mycorrhizal partners is important in predicting plant community dynamics.