Gossip – communication about an absent third party – is ubiquitous in daily life across societies. Gossip can impact selection of interaction partners and promote cooperation through reputation-based indirect reciprocity. To date, experiments have found that people use gossip to communicate others’ cooperativeness and to condition their own cooperation. Yet, little is known about how people gossip in daily life, that is, what people gossip about and whether they indeed use gossip to update the reputations of others in their social network. In a community sample (N = 309), we use intensive experience sampling techniques to randomly sample daily events (k = 5,154) when people either sent or received gossip, for 10 days. We found people do gossip about issues closely linked to others’ cooperativeness (e.g., trustworthiness, warmth, and norm violations), and people overwhelmingly believed this gossip to be true. In support of a theory of indirect reciprocity, we found that gossip received in daily life was used to update the cooperative reputation of others, and that a positive shift in people’s cooperative reputations related to higher (lower) intentions to help (avoid) the target of gossip in future interactions. We also found that people used gossip strategies that minimize the possibility of retaliation from the target of gossip (e.g., gossiping to close others, especially when gossip is negative). Thus, gossip is being used in daily life to efficiently impose reputational costs/benefits, and people indeed update reputations based on this gossip in a way that can influence partner selection and indirect reciprocity.