Antimicrobial peptides are a vital component of the innate immune system of all eukaryotic organisms and many of these peptides have potent antifungal activity. They have potential application in the control of fungal pathogens that are a serious threat to both human health and food security. Development of antifungal peptides as therapeutics requires an understanding of their mechanism of action on fungal cells. To date, most research on antimicrobial peptides has focused on their activity against bacteria. Several antimicrobial peptides specifically target fungal cells and are not active against bacteria. Others with broader specificity often have different mechanisms of action against bacteria and fungi. This review focuses on the mechanism of action of naturally occurring antifungal peptides from a diverse range of sources including plants, mammals, amphibians, insects, crabs, spiders, and fungi. While antimicrobial peptides were originally proposed to act via membrane permeabilization, the mechanism of antifungal activity for these peptides is generally more complex and often involves entry of the peptide into the cell.