The persistence of mutualisms is paradoxical, as there are fitness incentives for exploitation.  This is particularly true for plant-microbe mutualisms like arbuscular mycorrhizae (AM), which are promiscuously, horizontally-transmitted.  Preferential allocation by hosts to the best mutualist can stabilize horizontal mutualisms, however preferential allocation is imperfect, with its fidelity likely depending upon the spatial structure of symbionts in plant roots.  In this study, we tested AM mutualisms’ dependence on two dimensions of spatial structure: the initial dispersion of fungi and the ease of fungal dispersal, through three complementary experiments. We found that fitness of the beneficial AM fungus increased when fungi were initially separate, while initial spatial mixing benefited the fitness of the non-beneficial fungus. These effects were strongest when dispersal was limited, and hosts could discriminate.  Additionally, we found that spatial structure moderated changes in AM fungal composition produced differential feedbacks on plant growth.  Our results identify symbiont spatial structure within plant roots as an important modifier of plant preferential allocation and the dynamics of  mycorrhizal mutualisms, with cascading effects on plant communities.