Management of rice false smut disease caused by Villosiclava virens is dependent on demethylation inhibitor (DMI) fungicides. Investigation of molecular mechanisms of resistance is therefore of upmost importance. In this study the gene encoding the target protein for DMI fungicides (VvCYP51) was cloned and investigated. The VvCYP51 gene in the resistant mutant revealed both a change from tyrosine to histidine at position 137 (Y137H) and elevated gene expression compared to the parental isolate. In order to determine which of these mechanisms was responsible for the reduced sensitivity to DMI fungicide tebuconazole, transformants expressing the mutated or the wild type VvCYP51 gene were generated. Transformants carrying the mutated gene were more resistant to tebuconazole compared to control transformants lacking the mutation, but the expression of the VvCYP51 gene was not significantly correlated with EC50 values. The wild type VvCYP51 protein exhibited stronger affinity for tebuconazole compared to the VvCYP51/Y137H in both molecular docking analysis and experimental binding assays. The UV-generated mutant as well as transformants expressing the VvCYP51/Y137H did not exhibit significant fitness penalties based on mycelial growth and spore germination, suggesting that isolates resistant to DMI fungicides based on the Y137H mutation may develop and be competitive in the field.