SUMMARYAn anti‐fungal antibiotic was characterized from an extract of Calothrix sp. TISTR 8906 with respect to an inhibition effect on plant pathogenic fungi. Optimal medium for anti‐fungal compound production was modified from nitrogen‐free BGA medium by the addition of NaN03 at the concentration of 1.5gL‐1, increasing K2HP04 concentration to 1.5 g L‐1 and decreasing NaCl concentration to 0.03 g L‐1 with an initial pH of 7.0. Algal growth, anti‐fungal activity and anti‐fungal compound production could be increased 2.6‐fold, four‐fold and 10‐fold, respectively. Crude algal extract formulated with surfactant applied to Macrophomina phaseolina at a concentration of 250 μg seed‐1 showed the same efficiency at inhibition as the commercial fungicide, mancozeb, at the recommended dose of 200 μg seed‐1, both in laboratory and pot experiments.