Strigolactones (SLs), or their derivatives, were recently demonstrated to act as endogenous shoot branching inhibitors, but their biosynthesis and mechanism of action are poorly understood. Here we show that the branching phenotype of mutants in the Arabidopsis P450 family member, MAX1, can be fully rescued by strigolactone addition, suggesting that MAX1 acts in SL synthesis. We demonstrate that SLs modulate polar auxin transport to control branching and that both the synthetic SL GR24 and endogenous SL synthesis significantly reduce the basipetal transport of a second branch-regulating hormone, auxin. Importantly, GR24 inhibits branching only in the presence of auxin in the main stem, and enhances competition between two branches on a common stem. Together, these results support two current hypotheses: that auxin moving down the main stem inhibits branch activity by preventing the establishment of auxin transport out of axillary branches; and that SLs act by dampening auxin transport, thus enhancing competition between branches.