Many parasites survive harsh periods together with their hosts. Without the possibility of horizontal transmission during host diapause, parasite persistence depends entirely on host survival. We therefore hypothesize that a parasite should be avirulent during its host's diapausing stage. In contrast, the parasite may express higher virulence, i.e. parasite-induced fitness reduction of the host, during host life stages with good opportunities for horizontal transmission. Here we study the effects of a vertically and horizontally transmitted microsporidium parasite, Hamiltosporidium tvaerminnensis, on the quantity and survival of resting eggs of its host Daphnia magna. We find that the parasite did not affect egg volume, hatching success and time to hatching of the Daphnia's resting eggs, although it did strongly reduce the number of resting eggs produced by infected females, revealing high virulence during the non-diapause phase of the host's life cycle. These results also explain another aspect of this system – namely the strong decline in natural population prevalence across diapause. This decline is not caused by mortality in infected resting stages, as was previously hypothesized, but because infected female hosts produce lower rates of resting eggs. Together, these results help explain the epidemiological dynamics of a microsporidian disease and highlight the adaptive nature of life stage-dependent parasite virulence.