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Abstract Bacteriophages, the most abundant and genetically diverse life forms, seemingly defy fundamental ecological theory by exhibiting greater diversity than their numerous bacterial prey. This paradox raises questions about the mechanisms underlying parasite diversity. To investigate this, we took advantage of a surprising experimental result: when bacteriophage λ is continually supplied a single host, λ repeatedly evolves multiple genotypes within the same flask that vary in their receptor use. Measurements of negative frequency-dependent selection between receptor specialists revealed that diversifying selection drove their evolution and maintenance. However, the source of environmental heterogeneity necessary to generate this type of selection was unclear, as only a single isogenic host was provided and replenished every eight hours. Our experiments showed that selection for different specialist phages oscillated over the 8-hour incubation period, mirroring oscillations in gene expression of λ’s two receptors (Escherichia coliouter membrane proteins LamB and OmpF). These receptor expression changes were attributed to both cell-to-cell variation in receptor expression and rapid bacterial evolution, which we documented using phenotypic resistance assays and population genome sequencing. Our findings suggest that cryptic phenotypic variation in hosts, arising from non-genetic phenotypic heterogeneity and rapid evolution, may play a key role in driving viral diversity.