1. When individuals disperse, their performance in newly colonized habitats can be influenced by the conditions they experienced in the past, leading to environmental carry-over effects. While carry-over effects are ubiquitous in animal and plant systems, their impact on species interactions and coexistence are largely ignored in traditional coexistence theory. 2. Here we used a combination of modelling and experiments with two competing species to examine when and how such environmental carry-over effects influence community dynamics and competitive exclusions. 3. We found that variation in the natal habitat quality of colonizing individuals created carry-over effects which altered competitive coefficients, fecundity and mortality rates, and extinction probabilities of both species. As a consequence, the dynamics of competitive exclusion within and across habitat types was contingent on the natal habitat of colonizing individuals, indicating that spatial carry-over effects can fundamentally alter the dynamics and outcome of interspecific competition. 4. Interestingly, carry-over effects persistently influenced dynamics in systems with interspecific competition for the entire duration of the experiment while carry-over effects were transient and only influenced initial dynamics in single-species populations. Thus carry-over effects can be enhanced by species interactions, suggesting that their long-term effects may often not be accurately predicted by single-species studies. 5. Given that carry-over effects are ubiquitous in heterogeneous landscapes, our results provide a novel mechanism that could help explain variation in the structure of natural communities.