Epichloe typhina is an endophytic fungus, while Cladosporium phlei is a pathogenic fungus of the timothy plant (Phleum pretense L.). We found two activities in the culture filtrate of E. typhina: one stimulated the pathogenic fungus, C. phlei, to produce phleichrome and the other inhibited its growth. The active ingredients that stimulated the production of phleichrome and inhibited the growth of C. phlei were isolated and characterized. The isolated compounds were identified as cyclo-(L-Pro-L-Leu) and cyclo-(L-Pro-L-Phe), which were stimulatory compounds, and p-hydroxybenzaldehyde, which was the growth inhibitory compound, based on an analysis of their spectral data. Of the two stimulatory compounds, cyclo-(L-Pro-L-Phe) showed higher activity. However, when 500 microg of cyclo-(L-Pro-L-Phe) was spotted on the TLC plate for bio-autography, a growth inhibitory zone was identified in the central red region, which contained phleichrome. On the other hand, phleichrome showed antifungal activity against E. typhina in the light, so it is assumed that there might be antagonism between the endophytic fungus, E. typhina, and the pathogenic fungus, C. phlei.