A wide range of bacterial and fungal isolates was screened for their ability to detoxify the phytotoxin fusaric acid (FA), which is produced by a great number of Fusarium species. Some of the antagonistic fluorescent pseudomonad isolates were resistant to high concentrations of FA (up to 500 ppm). However, the bacterial isolates were unable to degrade or detoxify FA that was added to King's B (KB) liquid medium. A nonpathogenic Colletotrichum sp. isolate was able to completely detoxify FA after 4 days of incubation in malt broth medium containing 200 ppm of FA. At higher concentrations of FA (up to 400 ppm), the fungal isolate did not grow and FA was not degraded by the end of 10 days post-incubation. The Colletotrichum sp. isolate detoxified fusaric acid to 4-butyl-2-carboxy-pyrimidine. The chemical structure of the detoxified compound was identified by LC/DAD, LC-ES+/MS, LC-ES−/MS, GC-EI/MS and 1H NMR analysis. The toxicity of the detoxified compound was tested on tomato seedlings and on spore germination of different fungal isolates. No toxic effects were observed.