Multicellularity provides multiple benefits. Nonetheless, unicellularity is ubiquitous and there have been multiple cases of evolutionary reversal to a unicellular organization. In this paper, we explore some of the costs of multicellularity as well as the possibility and dynamics of evolutionary reversals to unicellularity. We hypothesize that recently evolved multicellular organisms would face a high cost of increased competition for local resources in spatially structured environments because of larger size and increased cell densities. To test this hypothesis we conducted competition assays, computer simulations, and selection experiments using isolates of Saccharomyces cerevisiae that recently evolved multicellularity. In well-mixed environments, multicellular isolates had lower growth rates relative to their unicellular ancestor due to limitations of space and resource acquisition. In structured environments with localized resources, cells in both multicellular and unicellular isolates grew at a similar rate. Despite similar growth, higher local density of cells in multicellular groups led to increased competition and higher fitness costs in spatially structured environments. In structured environments all of the multicellular isolates rapidly evolved a predominantly unicellular life cycle, while in well-mixed environments reversal was more gradual. Taken together, these results suggest that a lack of dispersal, leading to higher local competition, might have been one of the main constraints in the evolution of early multicellular forms.