Differences between species promote stable coexistence in a resource-limited environment. These differences can result from interspecies competition leading to character shifts, a process referred to as character displacement. While character displacement is often interpreted as a consequence of genetically fixed trait differences between species, it can also be mediated by phenotypic plasticity in response to the presence of another species. Here, we test whether phenotypic plasticity leads to a shift in proteome allocation during co-occurrence of two bacterial species from the abundant, leaf-colonizing families Sphingomonadaceae and Rhizobiaceae in their natural habitat. Upon mono-colonizing of the phyllosphere, both species exhibit specific and shared protein functions indicating a niche overlap. During co-colonization, quantitative differences in the protein repertoire of both bacterial populations occur as a result of bacterial coexistence in planta. Specifically, the Sphingomonas strain produces enzymes for the metabolization of xylan, while the Rhizobium strain reprograms its metabolism to beta-oxidation of fatty acids fueled via the glyoxylate cycle and adapts its biotin acquisition. We demonstrate the conditional relevance of cross-species facilitation by mutagenesis leading to loss of fitness in competition in planta. Our results show that dynamic character displacement and niche facilitation mediated by phenotypic plasticity can contribute to species coexistence.