Yeast form complex highly organized colonies in which cells undergo spatiotemporal phenotypic differentiation in response to local gradients of nutrients, metabolites, and specific signaling molecules. Colony fitness depends on cell interactions, cooperation, and the division of labor between differentiated cell subpopulations. Here, we describe the regulation and dynamics of the expansion of papillae that arise during colony aging, which consist of cells that overcome colony regulatory rules and disrupt the synchronized colony structure. We show that papillae specifically expand within the U cell subpopulation in differentiated colonies. Papillae emerge more frequently in some strains than in others. Genomic analyses further revealed that the Whi2p-Psr1p/Psr2p complex (WPPC) plays a key role in papillae expansion. We show that cells lacking a functional WPPC have a sizable interaction-specific fitness advantage attributable to production of and resistance to a diffusible compound that inhibits growth of other cells. Competitive superiority and high relative fitness ofwhi2andpsr1psr2strains are particularly pronounced in dense spatially structured colonies and are independent of TORC1 and Msn2p/Msn4p regulators previously associated with the WPPC function. The WPPC function, described here, might be a regulatory mechanism that balances cell competition and cooperation in dense yeast populations and, thus, contributes to cell synchronization, pattern formation, and the expansion of cells with a competitive fitness advantage.