Lateral gene transfer (LGT) is one of the most important processes leading to prokaryotic genome innovation. LGT is typically associated with conjugative plasmids and bacteriophages, but recently, a new class of mobile DNA known as integrating and conjugative elements (ICE) was discovered, which is abundant and widespread among bacterial genomes. By studying at the single-cell level the behavior of a prevalent ICE type in the genus Pseudomonas, we uncover the remarkable way in which the ICE orchestrates host cell differentiation to ensure horizontal transmission. We find that the ICE induces a state of transfer competence (tc) in 3%-5% of cells in a population under nongrowing conditions. ICE factors control the development of tc cells into specific assemblies that we name "mating bodies." Interestingly, cells in mating bodies undergo fewer and slower division than non-tc cells and eventually lyse. Mutations in ICE genes disrupting mating-body formation lead to 5-fold decreased ICE transfer rates. Hence, by confining the tc state to a small proportion of the population, ICE horizontal transmission is achieved with little cost in terms of vertical transmission. Given the low transfer frequencies of most ICE, we anticipate regulation by subpopulation differentiation to be widespread.