The origin of cooperation is a central challenge to our understanding of evolution. The fact that microbial interactions can be manipulated in ways that animal interactions cannot has led to a growing interest in microbial models of cooperation and competition. For the budding yeast Saccharomyces cerevisiae to grow on sucrose, the disaccharide must first be hydrolysed by the enzyme invertase. This hydrolysis reaction is performed outside the cytoplasm in the periplasmic space between the plasma membrane and the cell wall. Here we demonstrate that the vast majority ( approximately 99 per cent) of the monosaccharides created by sucrose hydrolysis diffuse away before they can be imported into the cell, serving to make invertase production and secretion a cooperative behaviour. A mutant cheater strain that does not produce invertase is able to take advantage of and invade a population of wild-type cooperator cells. However, over a wide range of conditions, the wild-type cooperator can also invade a population of cheater cells. Therefore, we observe steady-state coexistence between the two strains in well-mixed culture resulting from the fact that rare strategies outperform common strategies-the defining features of what game theorists call the snowdrift game. A model of the cooperative interaction incorporating nonlinear benefits explains the origin of this coexistence. We are able to alter the outcome of the competition by varying either the cost of cooperation or the glucose concentration in the media. Finally, we note that glucose repression of invertase expression in wild-type cells produces a strategy that is optimal for the snowdrift game-wild-type cells cooperate only when competing against cheater cells.