A thermostable diffusible substance produced by an aerobic spore-forming bacillus in a potato dextrose peptone medium containing 2% dextrose, 1% peptone, and adjusted to pH 6.5 was found to inhibit the growth of 77 out of 81 species of parasitic and saprophytic fungi. Actinomycetes were more tolerant than fungi, though some were completely inhibited. The majority of streptococci, staphylococci, bacilli, lactobacilli, and clostridia tested were suppressed by the toxic medium. Gram negative organisms were unaffected. Bacillus subtilis and, to some extent, B. cereus and B. pumilus produced thermostable substances toxic to Rhizoctonia Solani. Soil, bentonite, and activated charcoal completely adsorbed the toxic agent, agar was less effective and talc not at all. The toxic substance passed through cellophane, parchment, and collodion, resisted autoclavingfor30 to 45 min. at 15 lb., but was destroyed rapidly by heating in alkaline, but less rapidly in acid solutions; it was not inactivated by aeration and retained its potency for many months at 0 °C.; ether, chloroform, benzene, ethyl acetate, and N butyl alcohol could not remove it from the toxic medium but it could be eluted partially from charcoal with 95% ethyl alcohol. The substance has not as yet been identified.