This article investigates the impact of abusive supervision in causing the loss of psychological safety, which in turn impacts knowledge-sharing among project team members. Moderation and moderated mediation of psychological capital (PsyCap) in the direct and indirect relationship between abusive supervision and knowledge sharing is also tested. Using a multiwave and multisource survey, data are collected from 239 subordinate–supervisor dyads in Indian project organizations. Our research results suggest that employees with abusive leaders suffer a loss of psychological safety which in turn demotivates knowledge sharing behavior. Furthermore, the effects of abusive supervision on knowledge sharing are moderated by PsyCap such that the negative impact is alleviated by high PsyCap. Most significantly, the moderated mediation findings show that the mediated relationship is contingent on the level of PsyCap, such that the negative influence of hostile behaviors of supervisors on knowledge sharing via psychological safety is attenuated by low PsyCap. The findings of the study suggest that organizations should invest time and effort in preventing abusive supervision in the workplace and enhancing psychological safety. Clear policies, well-developed communication systems, and active involvement of employees go a long way in building a psychologically safe working environment. Given the importance of PsyCap in influencing psychological safety and knowledge sharing, organizations should pay attention to screening for personal resources in addition to knowledge, skills, and abilities. As a personal resource, PsyCap is malleable and firms may invest in developing employees’ PsyCap resources.