Prophages are quiescent viruses located in the chromosomes of bacteria. In the human pathogen, Staphylococcus aureus, prophages are omnipresent and are believed to be responsible for the spread of some antibiotic resistance genes. Here we demonstrate that release of phages from a subpopulation of S. aureus cells enables the intact, prophage-containing population to acquire beneficial genes from competing, phage-susceptible strains present in the same environment. Phage infection kills competitor cells and bits of their DNA are occasionally captured in viral transducing particles. Return of such particles to the prophage-containing population can drive the transfer of genes encoding potentially useful traits such as antibiotic resistance. This process, which can be viewed as ‘auto-transduction’, allows S. aureus to efficiently acquire antibiotic resistance both in vitro and in an in vivo virulence model (wax moth larvae) and enables it to proliferate under strong antibiotic selection pressure. Our results may help to explain the rapid exchange of antibiotic resistance genes observed in S. aureus.