Mycorrhizae are important mediators of plant competition, but little is known about the role of mycorrhizae in the intense competitive effects that exotic plants can have on native species. In the greenhouse, we tested the effect of arbuscular mycorrhizal (AM) fungi on interspecific competition between Centaurea maculosa and Festuca idahoensis, on intraspecific competition between individuals of both species, and the growth of C. maculosa with either inorganic or organic phosphorus. Mycorrhizae had no direct effect on either species, but mycorrhizae increased C. maculosa’s negative effect on F. idahoensis. When competing with C. maculosa, nonmycorrhizal F. idahoensis were 171% larger than they were when mycorrhizae were present. In a second experiment, C. maculosa grown with larger F. idahoensis were 66% larger, in the presence of AM fungi, than when AM fungi were absent. Centaurea maculosa biomass was not affected by AM fungi, in either phosphorus treatment, in the absence of F. idahoensis. Root:shoot ratios differed between phosphorus treatments, but this difference seemed to be a result of slower growth in the organic phosphorus treatment. Our results were unusual in that the direct effects of mycorrhizae on both species were weak, but the indirect effect of AM fungi on the interactions between C. maculosa and F. idahoensis was strong. Our results suggest that AM fungi strongly enhance the ability of C. maculosa to invade native grasslands of western North America.