In vitro interaction of the pigeonpea wilt pathogen Fusarium udum and a biocontrol strain of Bacillus subtilis AF 1 showed that the fungus forms chlamydospore-like structures and increases vacuolation, when both cultures are simultaneously inoculated into potato dextrose broth. If B. subtilis AF 1 was inoculated after 24 h of growth of F. udum, chlamydospores were not formed and regular conidiation was observed. The growth of F. udum was significantly affected in the presence of AF 1 in terms of dry weight. Extracellular proteins of B. subtilis AF 1 reduced the growth of F. udum in proportion to the concentration of the protein precipitate. Cell-free filtrates of B. subtilis AF 1 prepared from chitin-containing medium showed chitinase activity. The formation of chlamydospore-like structures and vacuolated portions in mycelium of F. udum in the presence of AF 1 suggests that F. udum has a mechanism to tolerate mycolytic activity and grows slowly with regular conidiation.