Quorum sensing (QS) in bacteria is thought to enable populations of cells to coordinately and cooperatively regulate gene expression for traits that confer group benefits. While this view has strong empirical and theoretical support, it is increasingly appreciated that QS under natural conditions may be incapable of monitoring bacterial numbers and, furthermore, that QS is evolutionarily unstable owing to conflicts of interest among competing cells. An alternative hypothesis, termed diffusion sensing (DS), proposes that autoinducer secretion monitors the diffusive properties of the local environment, with benefits that are directly realized by individual cells rather than populations. Here, we test central predictions of this hypothesis using the competence signalling system of Streptococcus pneumoniae as our model, which regulates the induction of natural transformation by the secretion and detection of a small diffusible peptide, CSP (competence-stimulating peptide). By experimentally manipulating the diffusive properties of the growth medium, we found that there is no fixed quorum for competence induction. Instead, induction cell density scales with diffusivity. In agreement with QS and DS expectations, we show that the benefit of signal exploitation by mutant cells that can use but not secrete CSP is strongly frequency-dependent. However, we also find that the magnitude of this benefit declines significantly as diffusion is reduced, a result more consistent with the predictions of DS. Together, these data provide strong support for the DS hypothesis for autoinducer response systems. More specifically, our results imply that autonomous rather than group benefits should be sought in order to more completely understand the role and evolution of CSP signalling in pneumococci.