Cooperation and diversity abound in nature despite cooperators risking exploitation from defectors and superior competitors displacing weaker ones. Understanding the persistence of cooperation and diversity is therefore a major problem for evolutionary ecology, especially in the context of well-mixed populations, where the potential for exploitation and displacement is greatest. Here, we demonstrate that a ‘loner effect’, described by economic game theorists, can maintain cooperation and diversity in real-world biological settings. We use mathematical models of public-good-producing bacteria to show that the presence of a loner strain, which produces an independent but relatively inefficient good, can lead to rock–paper–scissor dynamics, whereby cooperators outcompete loners, defectors outcompete cooperators and loners outcompete defectors. These model predictions are supported by our observations of evolutionary dynamics in well-mixed experimental communities of the bacterium Pseudomonas aeruginosa. We find that the coexistence of cooperators and defectors that produce and exploit, respectively, the iron-scavenging siderophore pyoverdine, is stabilized by the presence of loners with an independent iron-uptake mechanism. Our results establish the loner effect as a simple and general driver of cooperation and diversity in environments that would otherwise favour defection and the erosion of diversity.