Bacillus megaterium KL39, an antibiotic-producing plant growth promoting rhizobacterium (PGPR), was selected from soil. The antifungal antibiotic, denoted KL39, was purified from culture filtrate by column chromatography using Dion HP-20, Silica gel, Sephadex LH-20, and prep-HPLC. Thin layer chromatography, employing the solvent system of ethanol:ammonia:water=8:1:1, showed the $R_{f}$. value of 0.32. The antibiotic KL39 showed a negative reaction with ninhydrin solution, positive with iodine vapor, and also positive with Ehrlich reagent. It was soluble in methanol, ethanol, butanol, and acetonitrile, but insoluble in chloroform, toluene, hexane, ethyl ether, or acetone. Its UV spectrum had the maximum absorption at 208 nm. Amino acid composition, FAB-mass, $^{1}H-NMR,;^{13}C-NMR$, and atomic analyses showed that the antibiotic KL39 (MW=1,071) has a structure very similar to iturin E. The antibiotic KL39 has a broad antifungal spectrum against a variety of plant pathogenic fungi including Rhizoctonia solani, Pyricularia oryzae, Monilinia froeticola, Botrytis cinenea, Altenaria kikuchiana, Fusarium oxysporum, and F. solani. An MIC value of $10;{mu}g/ml$ was determined for Phytophthora capsici. Macromolecular incorporation studies with P. capsici using radioactive [$^{3}H-adenine$] as the precursor, indicated that the antibiotic KL39 strongly inhibits the DNA biosynthesis of the fungal cell. Microscopic observation of the antifungal action showed abnormal hyphal swelling of P. capsici. The purified antibiotic KL39 was very effective for the biocontrol of in vivo Phytophthora-blight disease of pepper.