Rhizoctonia solani is a damping-off pathogen that causes significant crop loss worldwide. In this study, the potential of Muscodor cinnamomi, a new species of endophytic fungus for controlling R. solani AG-2 damping-off disease of plant seedlings by biological fumigation was investigated. In vitro tests showed that M. cinnamomi volatile compounds inhibited mycelial growth of pathogens. Among nine solid media tested, rye grain was the best grain for inoculum production. An in vivo experiment of four seedlings, bird pepper, bush bean, garden pea and tomato were conducted. The results indicated that treatment with 30 g of M. cinnamomi inoculum was the minimum dose that caused complete control of damping-off symptoms of all seedlings after one month of planting. The R. solani-infested soil showed the lowest percentage of seed germination. In addition, M. cinnamomi did not cause any disease symptoms. From the results it is clear that M. cinnamomi is effective in controlling R. solani AG-2 both in vitro and in vivo. © 2012 Springer Science+Business Media B.V.