There has been extensive theoretical debate over whether population viscosity (limited dispersal) can favour cooperation. While limited dispersal increases the probability of interactions occurring between relatives, which can favour cooperation, it can also lead to an increase in competition between relatives and this can reduce or completely negate selection for cooperation. Despite much theoretical attention, there is a lack of empirical research investigating these issues. We cultured Pseudomonas aeruginosa bacteria in medium with different degrees of viscosity and examined the fitness consequences for a cooperative trait-the production of iron-scavenging siderophore molecules. We found that increasing viscosity of the growth medium (i) significantly limited bacterial dispersal and the diffusion of siderophore molecules and (ii) increased the fitness of individuals that produced siderophores relative to mutants that did not. We propose that viscosity favours siderophore-producing individuals in this system, because the benefits of siderophore production are more likely to accrue to relatives (i.e. greater indirect benefits), and, at the same time, bacteria are more likely to gain direct fitness benefits by taking up siderophore molecules produced by themselves (i.e. the trait becomes less cooperative). Our results suggest that viscosity of the microbial growth environment is a crucial factor determining the dynamics of wild-type bacteria and siderophore-deficient mutants in natural habitats, such as the viscous mucus in cystic fibrosis lung.