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Abstract Spatial organization of biological processes allows for variability in molecular outcomes and coordinated development. Here, we investigate how organization underpins phage lambda development and decision-making by characterizing viral components and processes in subcellular space. We use live-cell and in situ fluorescence imaging at the single-molecule level to examine lambda DNA replication, transcription, virion assembly, and resource recruitment in single-cell infections, uniting key processes of the infection cycle into a coherent model of phage development encompassing space and time. We find that different viral DNAs establish separate subcellular compartments within cells, which sustains heterogeneous viral development in single cells. These individual phage compartments are physically separated by theE. colinucleoid. Our results provide mechanistic details describing how separate viruses develop heterogeneously to resemble single-cell phenotypes.