Territorial animals breeding in high-density environments are more likely to engage in aggressive competition with conspecifics for resources necessary for reproduction. In many avian species, increased competition among breeding females results in increased testosterone concentrations in egg yolks. Generally, elevated yolk testosterone increases nestling growth, competitive behaviors, and bold behavioral traits. However, few studies provide an environmental context with which to examine the potential adaptive benefits of these phenotypic changes. In this study, tree swallow (Tachycineta bicolor) breeding density was altered to modify levels of social competition and yolk testosterone. We measured nestling growth, competitive ability, and breathing rate in response to a stressor using a partial cross-foster design. Females breeding at high-density experienced more aggressive, competitive interactions and their eggs had higher testosterone concentrations. Nestlings that hatched in high-density environments grew faster and displayed more competitive behaviors and a higher breathing rate response to a stressor regardless of post-hatching density. Our study demonstrates that phenotypic plasticity occurs in response to yolk testosterone variation resulting from different breeding densities. These findings suggest that naturally-induced maternal effects prepare offspring for competitive environments, supporting the idea that maternal effects are adaptive.