As infectious diseases have a severe impact on the individual survival and competitive ability of host species in grassland communities, competition between relevant species may have different consequences, potentially influencing the species composition of grassland communities and the functioning of grassland ecosystems. Understanding the impact of infectious diseases on competition is thus crucial for the health management of grassland ecosystems. How do infectious diseases affect the competitive coexistence of grassland plant species? In this study, by drawing on Tilman’s multispecies competition model and incorporating the spread characteristics of grassland plant diseases, we built three spatial competition models of two grass species subject to infectious diseases, and we analyzed the invasion conditions of infectious diseases and how they impact the population dynamics and competitive consequences of the species. Our model revealed the following: (1) Diseases with high transmission rates and low virulence are more likely to invade populations, while the presence of non-host species is detrimental to disease invasion. (2) Disease promotes the coexistence of competing species, breaking down the original competition–compromise trade-off mechanism for species coexistence and greatly expanding the range of parameters within which the two species can coexist. (3) Pathogen infections indirectly weaken the suppression of inferior species by dominant species, which is similar to the cascade effect seen in trophic interactions. Our findings highlight the importance of disease in species coexistence and grassland biodiversity maintenance.