Ambrosia beetles are social, fungal-farming insects that nest within tree xylem. Their close living conditions make them potentially vulnerable to microbial infectious diseases. We show that the insect pathogenic fungus effectively infects and kills adults, even within sawdust-based colony habitats. Healthy beetles did not avoid infected nestmates, and increased contact led to higher mortality and reduced offspring; however, larvae and pupae were still produced, even when colonies began with only infected beetles. Diseased individuals and CFUs were concentrated in the upper third of the nest, while surviving adults and brood were found in the middle/lower areas. A beetle symbiotic fungus, sp. Xa1 was identified, which inhibited growth, potentially aiding in defense. Our findings suggest spatial structuring and microbial interactions within the nest help protect vulnerable brood to support colony persistence, revealing colony-level mechanisms that buffer against spread of infectious diseases, favoring offspring survival.