Strains of Bacillus thuringiensis produce insecticidal proteins. These strains have been isolated from diverse ecological niches, such as soil, phylloplane, insect cadavers and grain dust. To effectively propagate, these strains produce a range of molecules that facilitate its multiplication in a competing environment. In this report, we have examined synthesis of a chitin-binding protein and evaluated its effect on fungi encountered in environment and its interaction with insecticidal proteins synthesized by B. thuringiensis. The gene encoding chitin-binding protein has been cloned and expressed. The purified protein has been demonstrated to interact with Cry insecticidal protein, Cry1Ac by Circular Dichrosim spectroscopy (CD) and in vitro pull down assays. The chitin-binding protein potentiates insecticidal activity of bacillar insecticidal protein, Cry1Ac. Further, chitin-binding protein was fungistatic against several soil fungi. The chitin binding protein is expressed in spore mother cell and deposited along with insecticidal protein, Cry1Ac. It interacts with Cry1Ac to potentiate its insecticidal activity and facilitate propagation of Bacillus strain in environment by inhibiting growth of certain fungi.