Lysobacter enzymogenes C3 is a bacterial biological control agent that exhibits antagonism against multiple fungal pathogens. Its antifungal activity was attributed in part to lytic enzymes. In this study, a heat-stable antifungal factor (HSAF), an antibiotic complex consisting of dihydromaltophilin and structurally related macrocyclic lactams, was found to be responsible for antagonism by C3 against fungi and oomycetes in culture. HSAF in purified form exhibited inhibitory activity against a wide range of fungal and oomycetes species in vitro, inhibiting spore germination, and disrupting hyphal polarity in sensitive fungi. When applied to tall fescue leaves as a partially-purified extract, HSAF at 25 mug/ml and higher inhibited germination of conidia of Bipolaris sorokiniana compared with the control. Although application of HSAF at 12.5 mug/ml did not reduce the incidence of conidial germination, it inhibited appressorium formation and suppressed Bipolaris leaf spot development. Two mutant strains of C3 (K19 and DeltaNRPS) that were disrupted in different domains in the hybrid polyketide synthase-nonribosomal peptide synthetase gene for HSAF biosynthesis and had lost the ability to produce HSAF were compared with the wild-type strain for biological control efficacy against Bipolaris leaf spot on tall fescue and Fusarium head blight, caused by Fusarium graminearum, on wheat. Both mutant strains exhibited decreased capacity to reduce the incidence and severity of Bipolaris leaf spot compared with C3. In contrast, the mutant strains were as efficacious as the wild-type strain in reducing the severity of Fusarium head blight. Thus, HSAF appears to be a mechanism for biological control by strain C3 against some, but not all, plant pathogenic fungi.