The growth of pathogens is dictated by their interactions with the host environment. Obligate intracellular pathogens undergo several cellular decisions as they progress through their life cycles inside host cells. We have studied this process for microsporidian species in the genus Nematocida as they grew and developed inside their co-evolved animal host, Caenorhabditis elegans. We found that microsporidia can restructure multicellular host tissues into a single contiguous multinucleate cell. In particular, we found that all three Nematocida species we studied were able to spread across the cells of C. elegans tissues before forming spores, with two species causing syncytial formation in the intestine and one species causing syncytial formation in the muscle. We also found that the decision to switch from replication to differentiation in Nematocida parisii was altered by the density of infection, suggesting that environmental cues influence the dynamics of the pathogen life cycle. These findings show how microsporidia can maximize the use of host space for growth and that environmental cues in the host can regulate a developmental switch in the pathogen.