Sclerotium rolfsii is a necrotrophic, soil-borne pathogenic fungus responsible for serious crop losses worldwide. It is one of the major phytopathogens infecting chilli and causes yield losses ranging from 16 to 80%. Among the various approaches to manage S. rolfsii, biological control is an environmentally acceptable alternative over other chemical methods. In this study, 120 endophytic fungal isolates obtained from a medicinal plant, Nothapodytes nimmoniana were evaluated for their in vitro and in vivo antagonism towards S. rolfsii. Among these, one isolate, Alternaria sp. exhibited 46.62% inhibition against S. rolfsii in dual culture assay on PDA. The inhibition was found to be mediated by the mycotoxin, tenuazonic acid, produced by the endophyte. Pre-germinated chilli seeds treated with mycelial suspension of Alternaria sp. reduced the seedling mortality due to S. rolfsii infection. Pretreatment with the endophyte also enhanced seedling growth and biomass compared to untreated seedlings under greenhouse conditions. These results suggest that the endophytic fungus, Alternaria sp. has potential implication for use as a biocontrol against S. rolfsii as well as for promoting growth of chilli.