Soil bacteria produce a diverse array of antibiotics, yet our understanding of the specific roles of antibiotics in the ecological and evolutionary dynamics of microbial interactions in natural habitats remains limited. Here, we show a significant role for antibiotics in mediating antagonistic interactions and nutrient competition among locally coexisting Streptomycete populations from soil. We found that antibiotic inhibition is significantly more intense among sympatric than allopatric Streptomycete populations, indicating local selection for inhibitory phenotypes. For sympatric but not allopatric populations, antibiotic inhibition is significantly positively correlated with niche overlap, indicating that inhibition is targeted toward bacteria that pose the greatest competitive threat. Our results support the hypothesis that antibiotics serve as weapons in mediating local microbial interactions in soil and suggest that coevolutionary niche displacement may reduce the likelihood of an antibiotic arms race. Further insight into the diverse roles of antibiotics in microbial ecology and evolution has significant implications for understanding the persistence of antibiotic inhibitory and resistance phenotypes in environmental microbes, optimizing antibiotic drug discovery and developing strategies for managing microbial coevolutionary dynamics to enhance inhibitory phenotypes.