Two important questions about mutualisms are how the fitness costs and benefits to the mutualist partners are determined and how these mechanisms affect the evolutionary dynamics of the mutualism. We tackle these questions with a model of the legumerhizobium symbiosis that regards the mutualism outcome as a result of biochemical negotiations between the plant and its nodules. We explore the fitness consequences of this mechanism to the plant and rhizobia and obtain four main results. First, negotiations permit the plant to differentially reward more-cooperative rhizobia—a phenomenon termed “plant sanctions”—but only when more-cooperative rhizobia also provide the plant with good outside options during negotiations with other nodules. Second, negotiations may result in seemingly paradoxical cases where the plant is worse off when it has a “choice” between two strains of rhizobia than when infected by either strain alone. Third, even when sanctions are effective, they are by themselves not sufficient to maintain cooperative rhizobia in a population: less cooperative strains always have an advantage at the population level. Finally, partner fidelity feedback, together with genetic correlations between a rhizobium strain’s cooperativeness and the outside options it provides, can maintain cooperative rhizobia. Our results show how joint control over the outcome of a mutualism through the proximate mechanism of negotiation can affect the evolutionary dynamics of interspecific cooperation.