For the last three decades, evolutionary biologists have sought to understand which factors modulate the evolution of parasite virulence. Although theory has identified several of these modulators, their effect has seldom been analysed experimentally. We investigated the role of two such major factors—the mode of transmission, and host adaptation in response to parasite evolution—in the evolution of virulence of the plant virus Cucumber mosaic virus (CMV) in its natural host Arabidopsis thaliana. To do so, we serially passaged three CMV strains under strict vertical and strict horizontal transmission, alternating both modes of transmission. We quantified seed (vertical) transmission rate, virus accumulation, effect on plant growth and virulence of evolved and non-evolved viruses in the original plants and in plants derived after five passages of vertical transmission. Our results indicated that vertical passaging led to adaptation of the virus to greater vertical transmission, which was associated with reductions of virus accumulation and virulence. On the other hand, horizontal serial passages did not significantly modify virus accumulation and virulence. The observed increases in CMV seed transmission, and reductions in virus accumulation and virulence in vertically passaged viruses were due also to reciprocal host adaptation during vertical passages, which additionally reduced virulence and multiplication of vertically passaged viruses. This result is consistent with plant-virus co-evolution. Host adaptation to vertically passaged viruses was traded-off against reduced resistance to the non-evolved viruses. Thus, we provide evidence of the key role that the interplay between mode of transmission and host-parasite co-evolution has in determining the evolution of virulence.